Teaching Teens About Money: 4 Tips for Success

This post is by contributing writer Neil Reed, an expert in saving and managing money.

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Fiscal responsibility is a challenge for many people. We can see it in the high incidence of credit card debt and the low rate of savings that plague our country. What's more is that financial practices have a legacy effect, meaning that your spending and saving habits will most likely be passed down to your children. But whether your habits are stellar or extremely poor, you can always improve your children's future by actively involving them (especially teens) in simple finances.

Teaching kids about money goes beyond providing them an allowance to manage. Explain to your children how the family budget works, and emphasize the importance of saving for future expenses, as well as reducing the costs of current ones - and don't hesitate to point out what can happen when money is mismanaged. Teens are at a prime age to understand and apply concepts such as budgeting, prioritizing, and even leveraging debt, in some circumstances. But younger kids will benefit as well. Consider the following tips to help impart crucial money skills to your kids.

1. Start Simple
Since you're already spending and hopefully saving money each month, share with your kids what you're doing and have them participate. Kids can be great deal-hounds if they put their minds to it - and this goes for online and in-store purchases. For example, when I purchase items for my children online, I have them research a variety of competing websites to find the lowest price. I also instruct them to look for free or cheap shipping. This makes it a fun game to see if they can find a better price than Mom.

Older kids are likely to benefit from learning about credit and debit as well. For example, you can point out the benefits of making purchases with credit - such as travel rewards and cash back - while also emphasizing that the purchase isn't "free." You need to pay it off at the end of the month, or pay interest and possibly penalties.

2. Constantly Reinforce Lessons
Showing your kids how you handle money and how you expect them to is a good start - but to reinforce the lessons, have them use their own money. For example, if your teenager is $20 away from being able to afford a new laptop and has found a great limited-time offer, you could extend a $20 loan to buy it. However, before you make the loan, make sure your child understands when it's due and the repercussions if it's not paid back on time. You could just give him or her the $20, but why waste a perfect opportunity to teach about credit? Of course, if the loan isn't paid off on time, you'll have to follow through on the repercussions - you know a credit card issuer would.

You may also teach your children to split up their allowance into money to spend, to save, and to donate. Reinforce these designations by taking them to the bank regularly to deposit their savings, and by helping them to send donations to a charity of their choice. Practice what you preach, and encourage kids to do the same.

3. Give Your Child Independence
Allowing your children a measure of independence is essential if you want them to effectively learn to manage their own funds. By allowing your child to be independent, you instill a sense of confidence that they can handle it - and if they encounter minor struggles, it's important to realize that mistakes can be excellent teachers.

For instance, say your teenager forgets to pay back a short-term loan, and now owes you a late payment penalty plus interest. The oversight may sting (for both of you), but you can bet he or she will think twice before taking out another loan, and will be sure to pay back future loans on time.

Younger children can benefit from making their own decisions as well. Let them decide how to use the "spend" portion of their allowance money, as well as which charity to donate to. And saving for a favorite toy or treat for a few months is a great way to motivate young children to understand the value and reward in delayed gratification.

4. Show Kids How to Save
As adults we save for a number of things: retirement, our children's college education, an emergency fund, a summer vacation, or a new car. Once kids have learned what saving means and have done it successfully, emphasize that saving for a range of expenses is also important. Teens can save a portion of their funds for college, a new car, and a special dance or date night.

You can also make older children responsible for a portion of their auto insurance coverage - which is likely to be a substantial expense for you. This type of consideration should also come into play when discussing which car to purchase, and additional benefits to safe driving. Hopefully, your teen will be a safe driver simply for safety's sake - but perhaps knowing that insurance rates will skyrocket with an accident will further encourage prudence behind the wheel.

Final Thoughts
There are plenty of ways to approach teaching your kids about money, and just explaining a credit card statement and showing the interest payments is likely to be a valuable lesson all by itself. However, the more involved your children are in their own and the family's finances, the more they'll develop positive and lifelong money skills. Even if you must share your own financial mistakes, do whatever it takes to help your kids get off on the right foot.

How do you teach your kids about money? Let us know in the comments below!