Michael Costigan is a 17 – year-old from Orange County, CA. He is a social entrepreneur, public speaker, and truly enjoys helping other’s better understand teen related issues. You can follow him at www.SpeakingofMichael.com
Teaching young people the value of money is one of the hardest, but most important things a parent or teacher will ever have to do. I have found that teens tend to make the same mistakes when it comes to their personal finances almost universally. And so, I will attempt to address a few of those common issues below and offer a solution, if not, at least some suggestions, on resolving those issues.
Money can be both an empowering thing for teens – giving them independence and increased mobility – as well as a dangerous liability. The habits teens develop in respect to their personal finances will carry on into their adult lives, both the good and the bad. This is one of the many reasons it is important to understand the ins and outs of money – earning it, saving it, and spending it – before it’s too late!
1. Personal Bank Accounts, Debit Cards vs. Shared Accounts with Parents.
I am of the opinion that the age to have one’s own personal checking account sits somewhere around 13 or 14. While this may seem young, I think kids need to start feeling the experience of spending their own money (even if it isn’t all earned at the time). They need to experience the feeling of a declining balance and feel for themselves the first intuitions of budgeting. I think there are many great online programs (Mint.com being one), which teens can use to set up budgets, track expenses, and scale all the way up into their adult lives. While parents will probably initially want to set up a subsidiary account for their child off of their own checking account, I somewhat discourage this. Being able to watch what your teen spends money on is nice, but does not build financial trust. If they run out of money with a debit card, they run out of money – credit is not an issue yet.
2. Jobs, Chores, Gift Money, Parent Handouts, Grade Money = Money Sources for Teens.
While I believe earning money is the most important way to a financially successful future, there are many circumstances where teens will gain money without working for it. For example, when parents give students money for report cards (argh!), and for ‘social expenses’. The important lesson to be learned here is that money, no matter its source, should be treated the same. I’ve made this mistake and learned the hard way many times – just because you get money for something ‘on top’ of whatever earnings you already have does not mean you should go out and use it! When it comes to giving teens money, until they’re old enough to have a job (that is, 16-17, sometimes 18) there will be definite intervals at which parents will be asked for money and, in many cases, have to give their kids money. There’s nothing wrong with that; it’s all about how the process is handled by the parent. However, that makes all the difference. Money should never be a hand out; money is transactional in the real world. In other words, something must be given in exchange for it. I think scaling the item, service, or action required for it should correlate directly to the age of the teen. For example, an 11 year old may be able to do services you would regularly pay for, a 17 year old may be able to take advantage of a paid internship at your office or work for you in your business.
3. Credit Cards, Student Loans, Financing Cars – Building Credit!
Seeing your teen get a credit card may be your worst nightmare, but it is an important part of growing up for them. Instilling proper values about how to treat a credit card (like trying if at all possible to pay it off every month) is definitely important. Teens should start building their credit early on because it sets them up better for car financing, student loans, and other things that could come up like unforeseen emergencies. There are many ways to build credit, and many banks and credit unions offer student cards with better APR and decent introductory offers. Even getting a credit card just to put your gas bills on every month is a good idea because then those successful repayments are reported to the major credit bureaus like Transunion, Equifax, etc. One of the most valuable lessons I have ever heard regarding credit cards is a story about how an entrepreneur I know used to paper clip cash bills to every receipt he received when using his credit card, that way when it came time to pay the bill he already had the money set aside – not a bad idea!
I hope that some of these ideas are useful in enabling your teens to become financially savvy and independent!