Financial Lessons for Teens

If I had to choose just one financial lesson for teens to learn before they head into young adulthood it would be the lesson of how money works in real life. In my last post, I said that I don’t believe you should pay your teen for doing chores or getting good grades. In fact, I don’t believe your teen should have to “earn” his allowance in any way. How, then, do we reconcile that with the fact that in “real life” money is earned, not just handed to you? I believe this question arises from a misconception about the definition of allowance. As I stated last time, I define allowance as money you would spend on your teen anyway, but instead of you managing it (doling it out as needed), you have him manage it by giving him a lump sum and a list of expectations for spending. The list you give him will derive from those things you were formerly purchasing for him (shampoo, toothpaste, gas money, clothing, etc.) Here are some possibilities to get you thinking about what purchasing expectations you can place upon your teenager with regard to allowance:

Clothing
Toiletries
Gas or money for transportation
Gifts for friends
Snack food or beverages

Keep in mind that this list is not exhaustive in that there are other items that could be added. Neither are you meant to make your teen responsible for all of the items on the list at once. In fact, a good rule of thumb is to start small. This applies both to the amount of the allowance as well as your expectations. If your teen has never managed her own money before, don’t give her a large amount and expect her how to figure out how to budget everything. Instead, give her enough for one or two small items (say snack food / beverages) and expect her to manage that money for a week at a time by giving her a weekly allowance. As your teen grows in financial responsibility, you can give her more money, expectations and a longer time period within which to learn the budgeting process.

When my son, Dan, began High School we gave him an allowance of about $10 / week. With that money, he was expected to buy his own after-school snacks and save enough for shampoo – a purchase that didn’t occur weekly so would require some foresight on his part to ensure he had enough at the end of the month. As he got older, we added items for which we wanted him to be responsible as well as raising his weekly allowance to cover those items. By the end of his Junior year in high School he was receiving $25 / week with the following responsibilities: transportation to and from extracurricular activities (at $2.25 per subway or bus trip, with two extracurricular activities, he needed to allocate $9 / week for transportation alone). With the remaining $14 / week, he was responsible for lunches on school days; all toiletries including shampoo, deodorant, toothpaste, razors, soap and shaving cream; entertainment (movies etc.); gifts and / or cards for friends' birthdays. Needless to say, he’s a careful shopper.

When American Express approached me and asked if I would write an 8 week blog about how to create a financially literate teenager (and offered to compensate me to boot!) I jumped at the chance. I want to give Dan more money (and more responsibility) now that he’s entering his Sr. year of High School, but didn’t necessarily want him to carry a lot of cash around in his pocket. A secondary advantage in my mind is that the Pass card allows me to keep an eye on his expenditures because I receive an email when he makes a purchase or withdraws cash.

Keep in mind that I've disclosed the specific information about our choices solely for reference purposes. In no way am I implying that you should give your teen the exact amount we give ours, nor should you require him to make the same purchases that we do. Rather, I'm hoping that you can use our experience as a kind of template for yourself. Depending upon how much money you make, what you've already been buying for your teen, where you live and other factors, you might choose to give your teenager either more or less than we give ours.

Next week, I'll discuss supporting your teen in family meetings, and what to do about the "real world" issue of people having to work for a living.

Please note that Julie Ross is being compensated by American Express for these blog posts and the ideas expressed are entirely her own.