One of the things we hear most often from people who take the Navigating Your Finances God’s Way Bible Study is; “I wish I had learned this earlier.” It is really crazy that we as parents do not do a good job of teaching our children financial basics. Proverbs 22:6 says, “Train up a child in the way he should go and even when he is old, he will not depart from it.”
How to manage money is something that every single person needs to fully comprehend. If you struggle with money, you will struggle in life. We encourage parents to take a proactive approach in teaching teens the value of money and how to spend, save and give wisely.
Teenagers are faced with challenges that we as adults have long since forgotten. They are on the threshold of adulthood and they’re facing many new pressures, many of them related to money. There’s money for social events, car insurance, lunch, clothes, school activities, sports, looming student loans, and the list goes on and on.
The financial success of your teen is not about how much they earn, it’s about how well they manage what they have. Discipline is the key to financial success for teens and adults. To help the teens in your life become better stewards of their finances, here are some ideas about what to teach them.
The basic premise of being a good steward is that everything comes from God. God created all things and he alone is the owner of all things. Our role is to be a good steward of the blessings God has given to us, including our finances. Once kids get this, the rest of the lessons fall into place.
The problem is that most adults don’t understand (or live by) this premise. Once your teen understands their role as a steward it’s time to establish a road map for success
The beginning step is to help them discern the difference between needs and wants. Many adults confuse needs and wants so how do we expect kids to know the difference? Needs are basic necessities to sustain life—food, clothing and shelter. Wants are anything over and above basic needs. But think about how many times you hear someone (teen or adult) say “I need to get a new phone.” Is an upgraded phone a basic necessity required to sustain life? Don’t think so! Knowing the difference between needs and wants helps your teen set priorities for spending.
Once they understand the difference between needs and wants, help them develop a budget based on less than their income (from their allowance or job). Part of the teen budgeting process is defining what teens pay for and what mom and dad will cover. Weekly budget reviews give parents a chance to ask them questions about their spending as well as talk about the expenses coming up in the next few weeks.
If your teen spends unwisely, use it as a learning experience, but don’t bail them out. If they blow their weekly lunch money on a video game, they need to figure out how to eat lunch the rest of the week without mom and dad giving them more money or making lunch for them.
The third step is to encourage them to save money. At least 10% of any income should be directed to savings. When they invest money, they can experience the magic of compound interest when their money earns a return. When this happens year after year, their investment compounds quickly. Time is as important as money when it comes to compounding. If they understand compound interest, they will understand that wasting time when saving is as bad as wasting money. If they are a saver, compound interest works for them.
On the other hand, if they are a debtor, compound interest works against them, so it is important to teach them about the cost of debt. Too many people get into financial trouble by not understanding what those “easy monthly payments” mean to their bottom line and they waste money by paying interest on credit card debts.
In order to avoid debt, establish a “cash based” environment. If they don’t have the money they can’t buy it, which seems to go against everything in our society. Our society encourages people to go into debt to get what they want (not necessarily what they need.) Helping them establish good spending habits through using a credit card wisely is OK, and maybe should be encouraged while they are at home under parental control. But the credit card must be completely paid off at the end of every month. If it isn’t paid off completely, have your teen cut it up.
Hand in hand with the danger of credit cards is the trap of college loans. Going off to college means the offer of thousands, if not hundreds of thousands of dollars in student loans. Typically, students understand about 2% of what they should understand about student loans. Help them recognize the impact of graduating from college with a ton of debt that will take years and years to pay off.
When they are a freshman in high school, start talking about college costs. Search for the “net price calculator” on college websites to see the total cost including expenses in addition to tuition. Explain how much more college grads earn than people without college degrees, making it a worthwhile investment. But be realistic about how much you can contribute to your child’s college education each year so kids will be realistic about where they apply. Look into financial aid: how much of it is “free money” such as grants and scholarships, how much financial aid is a loan that your child will have to pay back?
Along with credit card and student loan debt, help your teen pay attention to their credit score. If they have good financial habits, their credit will take care of itself. But there is always the possibility of a mistake. Help them stay on top of their credit score on a regular basis by getting a credit report from one of the three credit reporting agencies (Transunion, Experian, and Equifax) each quarter.
As adults, we’ve become so accustomed to managing our own money that we often forget to introduce basic financial concepts to our children. What is the benefit of saving? How do you balance a bank account? How do credit cards work? Giving teens opportunities to spend, save and give allows them to learn about finances while you are still there to guide them and teach them.
You can help them be financially literate and put them into a position of financial strength with the proper guidance. Today’s financial mistakes become teachable moments for better spending habits and responsible stewardship tomorrow.
“He who loves his son chastises him often that he may be his joy when he grows up. He who disciplines his son will benefit from him and boast of him among his intimates. He who educates his son makes his enemy jealous and shows his delight in him among his friends.” Sirach 30:1-5
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