Updated: Feb 11, 2021
It’s not easy being 13. It's not easy being 38 either but I firmly believe that having knowledge is empowering!
When your child become a teen, it’s almost like a switch goes off in their brain and they can understand the consequences of their actions a little more clearly or perhaps understand abstract concepts.
For example, my 13 year old seems to understand that if you get your chores done quickly than you can move on with your life and enjoy fun things. He doesn’t always realize this everyday but thankfully most days.
He is maturing and starting to be able to understand the concept of saving money. We sat down with him and helped him set a goal of purchasing a vehicle by age 16. In her book, "Smart money, Smart Kids", Rachel Cruze describes how her parents Dave and Sharon Ramsey informed their children that they would match each dollar saved by age 16 for a vehicle for each of their children. Both a challenge for the teen and the parents. So the story goes that his oldest child, saved $5,000 so she was able to purchase a $10,000 vehicle. The 2nd child, Rachel herself, saw that this promise was a reality so she saved up $8,000 and purchased a $16,000 vehicle. The youngest then managed to save up an impressive $12,000. At this point, the parents had not put a cap on how much they would match, so the deal was honored at $24,000. Although the youngest had a size-able chunk to spend, he had just returned from a mission trip and decided that rather than spending the full $24,000 that he would just purchase a $12,000 vehicle and donate the rest of the money towards those that needed it in Peru. I just love this story of promise and generosity so I tell my kids this story often! I loved this idea of matching your teen's savings, so we decided to try it out. We are just at the beginning of saving for this goal.
Hopefully, by teaching your kids that you have to work hard and have a goal to work towards, this provides their "why," for saving and mitigates the temptation to spend frivolously.
We waited until my oldest got to grade 7, then we sat down with him and informed him of what his expenses were for the year! Here is our rough Breakdown of each month:
We told him that we would provide that monthly amount into his chequing account and then have him proceed to make those payments himself, with our guidance and supervision of course. He was very surprised at all the costs of the different categories. You don’t know what you don’t know until you know. I’m always surprised about how much things cost too!
So, how can we Start to teach Personal Finance to our teens:
1. Start a discussion about money: talk about it often. Not just on special occasions and don't make it a taboo topic.
“If you don’t teach your kids how to manage money, somebody else will. And that’s not a risk you want to take!" Dave Ramsey
Teach them how to use money in 3 different categories to start with: Saving, Giving and Spending.
Currently, we pay our kids “commission” for their chores. It’s not very much money but just enough that they can divide it into 3rds. One third for Saving, one third for Giving and one third for Spending. The Saving money is for a larger goal like a vehicle. The Giving is for tithing and Generosity so that they get into the habit of understanding that there are other people besides themselves and that God owns it all. The Spending is for smaller items along the way, like slushies, ice cream, small toys, etc.
2. Discuss the cost of things in life and lay out a budget: a budget is such a loose term that means nothing if you don’t actually show your teen how to do it. No one comes out of the womb knowing how to budget. Show them your own budget and how you are deciding where to put your money for the next month. Put a name to each dollar. Your teen is going to make mistakes and that’s OK because they are still under your roof and young.
"If you have made mistakes with money, you know what that makes you? Over 12. We all mess up, get up and do it right." (Dave Ramsey.)
It’s easier to learn from those mistakes when you are still under your parents wing then when you are 50 years old and you now have baggage and are set in your ways. When you start younger, you have so much more potential. I'm not saying that it's hopeless at age 50 but just easier to start when you are younger. The stakes get higher as you get older, so letting your kids figure out how to handle money under your watchful eye is one of the best gifts you can give them as they grow up.
I recently spoke with a college graduate who said that she knew someone who came out of college with no degree and $50,000 in student loan debt, mainly from time spent at the bar. We ALL know someone like that. When I was in University and someone from my dorm spent $200 in one night at the bar and I was in disbelief. That was my spending money for the whole semester!
Learning how to plan and handle money early can help them have less regrets and pain with their money, which can help them set up their lives in an intentional way. Learning how to plan and handle money can prevent them from making decisions that may have them paying for years into their future, and hindering the progress that they could make early on in their lives, whether that is saving for a house, feeling confident enough in their finances to start a family, or just being able to be radically generous with their finances.
2. Discuss your own financial mistakes:
You should never be afraid of failure. Let your kids learn from your mistakes. Point out that successful people make mistakes as well.
Author and sales management expert, Steve Siebold, said:
Failure is often a prerequisite for success.
Failure helps to point you in the right direction if you lack a particular plan or if that idea is not reaping the rewards you hoped for.
Failure is NOT learning from your mistakes. Talk about the mistakes that you have made with your money, and what you learned from that situation.
One example we had was when I started nursing, I joined the employee matching RRSP through Alberta Health Services. I contributed for 5 years before realizing that the actual RRSP that I was contributing to was not assigned to any kind of investment. It literally was just accumulating in an account and not actual earning any kind of Interest. The lesson we teach our kids through this story is that you need to investigate and learn as much as you can about what you are doing with your money, so you can be fully informed and make good decisions based on that knowledge... so your money is actually working for you.
3. Set a good example:
As Rachel Cruze and Dave Ramsey always say:
“More is caught than taught”
Don’t be a hypocrite. If you want your kids to be good with money, than you have to show them either your mistakes and failures or show them how to be good with money by being a good example of self control and planning too!
4. Do life with your Teens:
Deuteronomy 6:7 says:
"Do your best to teach them to your children. Talk about them when you sit in your house and when you walk on the road and when you lie down and when you get up."
Basically everything is a teachable moment! Not just the obligatory one time sit down and have "the talk" situation. They won’t remember anything, except that it was awkward. This verse is not just for teaching your children spiritual wisdom but also for passing on financial wisdom. As you are walking around the neighborhood, ask your kids
"how much do you think that boat cost? Or that home?
How long would it take you to pay that off?
What is the Interest payment on that if you can’t pay for it with cash?"
Financial educator Ruth Hayden's family had weekly Sunday night meetings about money while her kids were growing up where the family discussed how to spend some of its household income as a family unit.
“Should we take an expensive family trip to California this year or should we skip the trip now and buy a camper next year instead? Kids love to be in on the big stuff,” says Hayden. “It empowers them in so many ways.
This year, we walked our teen through using his debit card to pay for his clothes for the school year. We had him look at his budget for the year for clothes and decide ”did he want or need more pairs of pants or was that enough”. He needed a little bit of guidance about how many pairs of jeans versus sweat pants that he needed. If left to his own devices, he probably would only own sweat pants. Insert teaching here: you cannot wear sweat pants to a job interview someday. And hey, if you don’t teach someone, how will they know. Hence why some people show up to job interviews wearing sweat pants. I mean it’s probably their favorite pair and might not have holes in them. Don’t get me started...
5. Have a discussion on saving money on things that you don’t care about and Spending and enjoying those things that you love!
I don't think anyone would admit to taking enjoyment from interest payments or paying unnecessary fees!
Teach your children how to,
“Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.”
(Ramit Sethi, I Will Teach You To Be Rich)
Ask your children what they value and love and help them to pursue those Enjoyable purchases. Those items of enjoyment may change with the different stages of life.
6. Don't be afraid to get into conversations that you think may be too complex for a teen:
Don't be afraid to teach them about the pros and cons of credit cards or how credit scores and credit reports work. You don't have to get into all the details right away. Start with the basics! and then keep building on them. Just like at school, in grade one: you start with 1 + 1 = 2 and then you build on these concepts with multiplication and division. And if you are uninformed about these things yourself, then start researching it yourself. Before you are able to teach a concept to someone, you have to be able to understand it yourself first and then be able to adapt your way of explaining it so that someone else understands it.
Help your kids look into the future and explore what investing for retirement means and looks like. Help them to understand what taking out a student loan for post secondary education means regarding future debt versus applying for student scholarships and grants and how that "free" money will help them reduce their future student loan debt.
“Setting aside some time to help them fill out applications builds a skill they’ll need in university when they’ll have to fill in a lot of these forms themselves.” Everyone likes money for nothing and teens are no different. If they learn the basics of investing at 15, even if they make some mistakes, they’ll be miles ahead in their finances at age 30.
Teaching them the details of personal finance and how bank accounts work and how to save up for items using delayed gratification will help your teen know what to do once they are an adult. Afterwards, they won't be surprised by these adult situations because they have already been taught the basics and will know how to do their own research about financial matters.
7. Give them ideas of how to earn money and give them confidence with job skills:
This summer, we helped our son start a lawn mowing business. It was a small business but filled with lots of learning opportunities. We set up a Mint account for him so he could learn how long it took him to pay off the cost of his lawn mower. We tried to look at his Mint budget monthly but it was too difficult to remember all the transactions and to appropriately categorize them so we had to adapt our approach and look at his Mint account more often. But how are we going to remember to do that? Well, back to the Cozi app to add it to the calendar! Without my calendar to remind me, I would be lost.
Discuss profit and loss statements and the value of saving up. I can't tell you how many adults I know that have just jumped into business without a plan and without any savings and then have to try to recover from this loss at age 45 instead of learning this in their teens and being able to recover these financial losses earlier in life.
What are some other ways that you can teach your kids about money so they are prepared to go into the big bad scary Adult world?
Now Go and Be Intentional!