Teaching Teens Money Management Basics

This article is provided and sponsored by:
ClearPoint Credit Counseling Solutions
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Stroll the shopping mall during a weekend and you'll see streams of teenagers. They're in clothing stores, fast-food restaurants, nail salons, video stores and other shops. They certainly know how to spend money, but do they know the value of money?

Maybe not. A 2007 survey of teens by Charles Schwab & Co. found less than half (40%) are able to budget their money effectively. Only one in three could read a bank statement, balance a checkbook and pay bills. While 45% of the teens surveyed know how to use credit cards, only 26% understand how credit-card rates and fees work.

If you're the parent of a teen, your son or daughter would benefit from guidance on how to manage their finances. The Schwab survey reveals that most teens (more than 80%) want to learn more about budgeting, saving and investing, paying their bills and staying out of debt.

The professional credit credit counselors at nonprofit ClearPoint Credit Counseling Solutions offer the following lesson plan for parents seeking to help their teens master the "ABCs" of good finances.

• Help your teen to select a bank and open a checking account. Review with your teenager how to manage their account properly. Remind your teen to record every purchase and withdrawal, balance the account each month, and refrain from drawing on funds until they are available. Discuss how to use debit and ATM cards responsibly.
• Stress the importance of monitoring financial accounts on a regular basis. This will help your teen keep a handle on their balance and budget. If your teen's bank offers online banking, they can view their account at any time and need not wait for the monthly paper statement.
• Discuss how to protect their financial account information. Your teen should refrain from leaving account statements or PIN numbers strewn about their room or stuck to their ATM card or computer screen. In fact, they should never be written down at all. Teach them the importance of never sharing their account information or bankcards with friends and always use privacy/security measures when shopping or banking online.
• Help your teen set up a budget to track spending. Begin with income. Help your son or daughter calculate how much money is available from an allowance, a part-time job, or other revenue sources. Next, help project what he or she needs each month for school supplies, clothing, entertainment, food, and other expenses. Separate the "wants" from the "needs." Your teen would benefit from tracking expenses for a month to see how much they typically spend.
• Show them how to modify the plan to make ends meet. What expenses can be eliminated? Perhaps your teen would prefer to increase their income, rather than cut expenses. Do they plan to get a job? Are you willing to increase their allowance, in return for their doing more chores, or for their taking responsibility for clothing purchases or other necessities?
• Emphasize the importance of savings. The earlier your teen starts getting into the savings habit, the better. Encourage your son or daughter to save a specific amount of money each month. It will teach them how compound interest works. It's also a good way to demonstrate how deferring immediate wants (new video game, pizzas) can eventually fund a bigger "prize" (Ipod, laptop computer, used car).
• Explain that credit is not the same as cash. It is not unusual for teens to be offered credit cards, particularly college students. Instruct your child on how interest rates, late fees and other charges are incurred that can increase what they owe. They need to know that small purchases can balloon into huge card balances if they constantly "charge it" and make only minimum monthly payments.
• If you think they're ready for a credit card, teach them how to choose one. Show them how to research the best credit card for their purposes. Discuss how to compare annual fees, interest rates, grace periods, late fees and other charges.
• Stress that a credit card is one small part of an overall financial plan. Having a credit card does not relieve your teen of the responsibility or setting spending priorities, exercising fiscal restraint, and establishing a good credit record.
• Discuss the importance of repaying debt in a timely and responsible fashion. Help your teen master the basics of debt management. Discuss paying bills on time; making more than the minimum payment due; and, avoiding missed or late payments that result in costly fees and can negatively affect their credit record.

A final word of advice: Encourage your teen to come to you if they end up in a financial bind. Then, work with them to take corrective action. Don't hesitate to seek the assistance of a reputable credit counseling agency, like ClearPoint Credit Counseling Solutions. We can help to educate the whole family about budget and financial issues.

Helping to put your teen on the road to financial stability is a gift that will last a lifetime.