Teenagers and Money – a huge topic!  In Part 1 we covered Responsibility, Accountability and Consequences, this week we’re talking about helping your teen build a money plan – not a budget.

If your teenager hasn’t learnt the technique of managing their pocket money (allowance) using cash when they were younger, you will need to encourage them into this system.

As you recall from our last blog Teenagers and Money – Part 1, the reason we want you to teach your children by using cash is so they understand the pleasure of buying something and the associated pain of paying for it.

Cash also enables you to teach you teen about choice and that a finite sum of money will only buy so much, e.g. which item are you going to choose?  Using cash also breaks the abstraction of money (where the pleasure of buying is separated from the pain of paying).

It also teaches your teen to understand where money comes from and where it goes.  It isn’t an abstract concept such as a piece of plastic or a phone.

Don’t give your teen a credit card!

When they have learnt the value of the $$ by using the cash system you can then switch to the bucket system of bank accounts.  For a start have two accounts, a ‘Spending Account’ which has a EFTPOS or debit card attached to it and a separate ‘Savings Account’ which they can’t easily access.  It may be that you have the Savings Account at a different bank.

The Money Plan.

Help your teen build a money plan.  They may have several money sources from a part time job and an allowance from you.  Work together to calculate what their total expenses are, include everything from the food they eat, medical insurance to hobbies and activities, phones, etc.

Give them the full picture of their life so they see the cost of living isn’t just clothes, phones and going out with mates.  This is preparing them for the day they do leave the nest.

Once you have built the total list, go through it with them and break it down into what as a parent you are paying for and what they are contributing to from their own money.  For example, you might provide a car for them, but who is paying the expenses for that vehicle?  Petrol, repairs, insurance and so on.

Once you have done this, there is quite possibly going to be a shortfall in what your teen wants to spend their income on and what the income is.  This is where you introduce the concept of their Needs and help them make choices about what is really important to them.

Use stories from your own teens

When you made mistakes (throw in some non-money stories too!) as well as some of the things you got right.  Do your best to make it a relaxed conversation and don’t be overly critical of the numbers your teen comes up with when working out the cost of living.

This is a learning experience for them – and quite possibly a reality check as well.  Be honest and clear with them about the boundaries of what you are paying for.

teenagers and money

Don’t forget that your children may have different money personalities from each other so you will need different systems and processes for each child.  As a family share your money personalities.  This will help your teen understand why it might be different for them, than it was for their older sibling.

This process is going to take some time to work through, your average teen isn’t very likely to get excited at the prospect of spending hours with their parents putting together a Money Plan.  So, break it down into small manageable chunks and spread it out over however long you need to, to get through the process.

If either you or your teens gets frustrated or emotional and this money plan thing is going nowhere, stop and pick it up again later.

Remember the purpose of teaching your teen about money, is that you are preparing them for the real world and what to expect when they do leave home.  You are also building trust so that they will come to you first (not their mates) when they need to make financial decisions that will have lasting impact on their future.

When they come to you for financial advice

Don’t be afraid to let them make mistakes if they don’t like what you’re suggesting.  These mistakes aren’t failures, they’re life experiences.

As a parent, all this may seem a huge task!  Stick with it, it will be worth it in the end when you see your children set up for life because of what you have taught them.

And for them, this money plan thing may well be the difference between a life of struggle and a life of their dreams.

If you are serious about discovering ways to change your behaviour so you can reach your financial goals and build a happy and successful life, then drop us an email or click on this link to find a day and time that suits you to have a chat with us – it’s completely free!