Teaching Adolescents How to Manage Money

The question amounted to this: “Is there a single factor that might predict how successfully a last stage adolescent (18 – 23) will self-manage the increased independence and responsibility that come with moving out and living apart from family?”

If I had to pick one factor, it would be how well that young person has learned to manage money. So many daily life decisions are of a spending kind.

What can make financial self-management particularly difficult in the last stage of adolescence is the new sense of liberation that comes with living away from family. In addition, there are also the counterproductive cultural messages about managing money to contend with. These come from a very aggressive marketplace and also from the urgings and examples of financially impulsive peers during a time of increased freedom when it’s easy to think expansively and expensively, when it can be tempting to operate above one’s means.

Consider what just a few counterproductive money management ideas might be. “Pleasure is worth the price.” “Live for the present; not the future.” “Money is for spending.” “Borrow now and worry later.” “A quick loan is worth the interest.” “Gambling is a good way to make fast money.” “The best place to save money is buying at sales.” “The best way to save money is by promising to start tomorrow.” “Budgets are just for people who can’t control their spending.” “Only pay bills when they come overdue.” “Keep up with free spending friends.” “The more you owe the less debt matters.” “Never turn a good deal down.”

Rather than follow such misguided ideas, I think it’s better if the last stage adolescent has received adequate financial management training from parents while growing up. How is this to be done? Here are some suggestions you might want to consider.

DIAGNOSIS

With your child or certainly with your young adolescent, ask yourself a very telling question: When it comes to having some ready money, does she or he seem to be a Spender or a Saver? A ‘spender’ is a child who as soon as money is in hand has an overwhelming urge to spend it right away on something immediately pleasurable, it often doesn’t seem to matter what. A ‘saver’ by contrast wants to delay, hold onto the money, is inclined to think about purchasing possibilities that arise with its accumulation, perhaps waiting to spend on something more expensive ahead.

Psychologically, youthful spenders often seem to have low impulse control, high need for immediate gratification, and focus more on now than later. Youthful savers often seem to have more self-restraint and some sense of future possibility worth planning for. Savers tend to have a capacity for delayed gratification and judgment that spenders often seem to lack. For this reason, it can be worthwhile for parents to help a spending child practice a saving habit.

ALLOWANCE

By second or third grade, parents can consider giving a child a weekly allowance the purpose of which is starting to learn to manage money. For example, I’ve seen parents explain how this small sum needs to be divided in three parts for three purposes: saving, tithing, and spending. The purpose of saving is to learn about the buying power of accumulation. The purpose of tithing is to learn to think of others in need for who the donation of even very little money can be of help. The purpose of spending is learning to weigh priorities and decide on buying something of momentary or more lasting value.

Of course allowance is not to be in pay for completing chores (these are unpaid household membership contributions) or to be taken away as punishment (because that gets in the way of the intended education.)

Allowance is to begin to teach some rudimentary skills for money management, among which is that it is never enough to buy all you want, so the child must exercise judgment and learn to be selective.

EARNING MONEY

Too young to get a job out in the world, parents can set occasional earning opportunities in the home to help the child connect doing work and getting paid for labor. Such special work is outside of expected chores and normal requests for household help which are freely invested in the upkeep of family. In the same way, money is not attached to grades which take unpaid work to accomplish.

Once in early to mid-adolescence (ages 9 – 15) young people can start getting work outside of family, perhaps from family friends or neighbors, like doing yard work, clean up, pet care, or babysitting for example. What young people learn is working with an employer, fulfilling an agreement, assuming some responsibility, how it can take a lot of time and effort to make relatively little money, and how the earning can give money additional personal value. Also, earning can affirm self-esteem: “I have effort to offer that is worth paying for.”

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PART-TIME EMPLOYMENT

Once of high school age, part-time jobs out in the world, usually of an entry level kind, can provide school year and summer employment. In most cases this is more money than the teenager had made before, and now this income can be dedicated to contributing not just to meeting social, entertainment, and personal purchasing objectives, but also to expense sharing with parents. For example, now the teenager may be responsible for gas and some part of insurance when there is use of a car, or maybe help subsidize some kind of a personal experience like special training or a trip. Part-time employment can teach money management for partial self-support.

PRACTICING MONEY MANAGEMENT

With their teenager now enrolled in high school, parents need to start looking ahead to graduation and consider what kind of money-management skills the young person will need to have in place to rely on when leaving home. Their objective is providing sufficient preparation so that the young person will have the smallest next step to successfully manage further independence.

The financial question for parents is: when during the 48 short months of high school are they going to start teaching the young person about banking, borrowing, budgeting, bill paying, wise buying, and the like? So: when during high school is the young person going to be given some monthly allotment that must be budgeted to manage agreed upon operating expenses? Getting practice meeting financial obligations and making money last are skills the young person must soon rely on when on their own.

“FAMILY FINANCE 101”

The parents that provide this invaluable training are definitely in the minority, at least from what little I have seen. Essentially, they open the family books to the teenager, even starting as early as middle school.

Essentially parents use the financial functioning of the family to teach money management using personal example to instruct. It costs a lot to support a family, and now the teenager learns why it does and how it is done. On a regular monthly basis parents use bill paying time and the planning of major purchases to share how (and how much) money is made, how money is budgeted, how money is spent, how money is saved, how money is invested, how money is borrowed, how credit is used, and how debt is serviced.

For some parents, even more uncomfortable than discussing sexual information with their adolescents, is discussing family finance which is treated as private, out of bounds, and not any of the young person’s business. However, it is definitely grounding in reality for the teenager to see specifically what it costs to support their family ("We spend that much on food each week?"), what hard decisions must be made, and how unexpected expenses or times of income decline mean parents must function more carefully.

Finally, and this requires even more self-disclosure by parents, they can use their own history with managing money not only to share good practices but hard lessons they’ve learned, and how they recovered from their own money management mistakes. The message is: parents know from beneficial and painful experience whereof they speak

Competent money management is a challenge for everyone, including their parents, and the teenager needs to know this. Those young people who leave home with these skills and responsibilities mostly in place are better able to keep their footing and make their independent way, at least so I have observed.

For more information about parenting adolescents, see my book, “SURVIVING YOUR CHILD’S ADOLESCENCE,” (Wiley, 2013.) Information at: www.carlpickhardt.com

Next week’s entry: Helping Adolescents Keep Agreements