Financial Management By The Decade: Teen Years

When I was about thirteen, I started earning extra money by babysitting the neighbourhood kids. My 35-cents-an-hour earnings were then promptly spent – probably on chocolate.

Teens are a lot savvier these days. Younger teens are babysitting, dog walking, doing yard work, setting-up computers and software (for people like me) and the like. Older teens are stepping into the paid workforce with various part-time jobs.

Related: How parents can give their kids a financial leg-up

Teens with part-time jobs can have plenty of disposable income. Lacking financial obligations, it’s easy to fall into the habit of spending freely on trendy clothes, gadgets, etc.

You can teach your youngster valuable lessons about saving and spending that will lay the foundation for sound habits later in life.

Step #1 – Setting Goals

Teens aren’t interested in saving for retirement, the differences between fixed and variable interest mortgage rates, or a comparison of buying a new car versus leasing.

The key is to help your teen think about his or her particular financial goals and set up a plan to get there. What do they want to use their money for? They need to make decisions about current and future wants to help them prioritize how to spend their money.

Related: Should an allowance be tied to chores?

Short-term goals may be going out for a pizza and movie with their friends. Medium-term goals could be taking a school trip, video game, or luxury clothing item. Their long-term goals will be more like saving towards university or buying their own car.

Step #2 – Budgeting

Yes, I know this topic will result in a lot of eye rolling, but it’s important.

Does your youngster have regular expenses? Some parents pay for everything. Other teens are responsible for such things as school lunches, gas if they use the family car, contribution to family phone plan.

Help them set a weekly spending maximum for discretionary wants.

Teach them how to comparison shop instead of excitedly buying their desired item in the first store they see it.

If you feel comfortable, be open about your own finances and share some real life examples. Most parents are secretive about their money. Talk to your kids about your expenses each month and what your take-home pay is. When your teen knows what’s left over after the mortgage payment, bills, food, etc. they can more easily understand that the money pool isn’t endless.

Step #3 – Saving

Teens should learn the golden rule of finance early on – pay yourself first. Convincing them to set aside a portion of their money can be difficult. They should find a way to save, no matter how small the amount.

Related: 6 life and money lessons from our elders

A good savings plan sets money aside for big purchases in the future and short term needs. Encourage them to regularly set aside a portion of their job earnings – say 10 or 20 percent. This habit will spill over to when they work full-time and can set up a lifetime of healthy saving.

Open a bank account. Most banks have accounts, especially for young people. Look for a chequing account with no monthly fee. Beware of bank machine fees – especially transaction fees for a non-home ATMs. Instill in your teen to never share PINs or online passwords.

Investing in themselves

When close to a major goal teens may seek other opportunities to make more money. Whether it’s odd jobs for neighbours or part-time employment, make sure the job fits their school schedule – schoolwork should be their first priority.

The recommendation is not more than 10 hours per week with most of those hours falling on the weekend. They can supersize their paycheques in the summer.

Related: How to put your kids to work

It pays to succeed in school. Education, training and work experience can lead to a better job and a higher income stream over their lifespan. Jobs they take now can help build skills they can use later on.

Let them make mistakes without interfering

Teens may be tempted to waste money on useless things. Let them learn at a time when financial mistakes won’t be costly.

Don’t second-guess teens’ financial choices. A parent will always have a bias about what their teen spends money on.

Let them make mistakes and pay the price. It’s important for parent to know when to step back and let their teens struggle and handle unexpected expenses themselves.

e.g. first car accident and paying the $1,500 bill!

You can agree to pay a portion of a costly item, but don’t cave-in and just give your teens the money if they fall short of their savings goal.

It’s best to lead by example. Parents need to demonstrate good money habits themselves.

A word about older teens

At eighteen or nineteen, your teen may be off to a post-secondary educational institution. At this age, sticking with the financial lessons previously learned can be challenging.

Related: Of course . . . but maybe

Credit card companies launch marketing campaigns on campuses each fall offering special low rates and free gifts. Young adults can be tempted to use credit for mainly current consumption items. If used irresponsibly credit cards can result in the inability to borrow funds at affordable rates in the future and can limit or delay other worthwhile purchases – house, car – down the road.

While some people may advise to staying away from consumer credit at this age, teaching your youngster about debit and credit cards is a vital part of general money skills.

At 18, they can open a TFSA. They are also eligible for GST/HST credits if they file a tax return.

Books on finance for teens:

  • The Wealthy Barber, David Chilton. This is one of the biggest selling and popular financial planning books ever, now available in a new, updated edition.
  • The Complete Guide to Personal Finance for Teenagers, Tamsen Butler
  • The Smart, Savvy Young Consumer, Pat Foran
  • The Secret Life of Money, Kira Vermond
  • The Teen Money Manual, Kara McGuire

And for your secondary school bound teen:

  • More Money for Beer & Textbooks, Kyle Prevost and Justin Bouchard

Financial takeaway for teen years: building good habits.

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  1. Victoria on October 13, 2015 at 2:17 pm

    Do you have any recommendations (i.e. books/resources for children, 3-10 yrs)? I’d like to start the conversation early.


    • Diane on October 13, 2015 at 8:41 pm

      When our son was young (6 or 7), we had 3 plastic cups. We would pay him for chores for the week $1.50 in quarters. He would put 2 quarters in each cup. The first was saving – never to be removed. The second was for expenses – mainly school related. The third was for spending. We talked about the importance of the saving cup for future large items, car, house, education, etc. We talked about the expenses he had to pay, school trips, Scholastic books and how if he spent too much on the books, then he would not have enough to go on the trip. This required a lot of thinking and planning. The spending cup could be used for candy today, or a game if he saved for a little bit and we discussed these options.

      He is 16 now and splits his funds in 5 directions. 30% still goes to saving. He has been handling his school expenses for many years now and does very well with it. When he hit high school he wanted to buy lunch at the caf, like his friends. We give him $15 on Monday and he can purchase at school or take from home, but if he takes from home he has to pay $1.25 (he needs to understand that it still has a cost, just a lot less). With his restricted lunch budget, he organized 3 friends to go to the local pizza place where they can get a large pizza for $11.29 (tax in), and he stays under his $3 per day. The long term of making choices has made him a knowledgeable shopper.

      Sorry I can’t recommend a book, but the cups are simple to understand and were a source of many discussions. He loved to explain to other adults his insight into the money world.

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