Sometimes we get hung up on the details don’t we? We worry so much about our approach that we never get our ideas off the ground. This can be true in so many areas of life – particularly when we want to try something to help our kids. However, this is one area where you really can’t mess up. If you do something purposeful to help your teen learn to manage their money, then you are way ahead of the game! It may not be perfect but it’s SOMETHING. So have a conversation with your teen, pick a system that works for everyone, and get started! Here are a few ideas:
Saving A Percentage
Sit down with your teen and decide (with them) what they need to be saving for in their life. Come up with the percentage that you both believe is reasonable for that savings. Do they need a car? Maybe they should save 50% of all of their earnings for that purpose. Do they want to go to college? Then maybe they need to focus a higher percentage towards a college fund.
The Envelope System
Establish envelopes for each savings category. They decide in advance how much of their money will go into each of those categories each time they are given or earn money.
Keep Gifts/Budget Earnings
Some parents choose to allow their teens to do whatever they want with money that they are given at holidays or on their birthday but ask that they carefully budget the money that they earn or are given in the form of allowance. This approach allows the teen to have complete control over some of the money they have coming in and somewhat less control over what they earn on a regular basis.
This is just so easy! Have your kids save half of everything they earn or are given! I personally think this is easier to do if you are dealing with a very young teenager, because they are less likely to have other bills like gas or insurance for a car. However, it is a great habit to be in and can always be adjusted when the teen begins to have other expenses.
No More Allowance
Some of our friends no longer give their older teen an allowance, particularly if that teen has a part time job. At that point, they are expected to pay for their own entertainment expenses and such. Those same parents may still require that teen to save a portion of their income for long term goals like college.
The Parent 401K Matching Program
This is a system that Dave Ramsey used with his kids. Basically, when his young teens got to the point where they were thinking of saving for a car, he did a ‘matching program’ with them. For every dollar they saved, he saved one as well. This doubled their money and allowed them to buy a decent used car once they had saved for several years. I know, I know. Many of us would love to do this, but are simply not able to help our kids in this way. BUT – if you can – it’s a great way to give an incentive to your teen for saving their money. Maybe you could do a 50% match or less if you cannot do a 100% match.
This is the system that most parents fear… Many of us are afraid to trust that our teens will save enough of their money. However, if they are the ones earning the money, most people would agree that they should be the ones directing where their money goes. This is a loose system where the parent guides the teen and has established a good foundation of financial literacy with their child. At that point, the parent steps back and gives the young person the freedom to make their own decisions.
Okay. In accord with my own ‘no judgement zone’ guidelines, you can decide to do absolutely nothing to help your teen learn how to save their money. And that is a viable option. And no one is going to say a word about it to you. A lot of people didn’t know a thing about managing money and are happily digging their way out of debt as adults and they are doing just fine….ahem.
So – whatever you decide to do, remember that any system is going to help your teen. You cannot make them handle their money wisely as adults but you can give them the tools that they need in order to get started on the right foot. It is my opinion that if you simply impose something like this on them without a respectful conversation discussing options and what you want to help them accomplish, then you are risking great conflict in the relationship. Be honest about the mistakes that you have made with your own finances, and be transparent about the steps that you are taking to correct those errors. Explain how you want to help them move toward financial literacy and complete independence. Make these decisions with them so that everyone is on the same page.
Eva has an envelope system that she uses. She directs how much of her money goes into each of these envelopes and currently has college, retirement, car, spending and clothing categories. I asked her what she would do if she had $25 to put in her envelope. At this point, she would basically put $5 in each envelope. I think that she should think about putting more in her college envelope at this point, but am willing to allow her to make that final decision as long as she is saving for college. We probably need to take a much closer look at how much college costs will be so that she can have a better understanding of how much money needs to be in that envelope by the time she graduates from high school.
What plan are you currently using to help your teens save? Do they want to save their money or not?