Here’s a scary statistic: student loan debt in America recently topped $1 trillion, second only to home mortgages as the highest single contributor to consumer debt. As a parent of a teen either in college or thinking about it in the near future, this statistic is likely to scare you the most as you consider how you (and they) will get through these crucial years.
However, it is not all on you, and it’s dangerous on several accounts to think that way. Teens need to take responsibility for their own purchases, including everything from cars to college, and be involved in the process.
What Our Children Actually Know About Money
A recent global report by the Programme for International Student Assessment (PISA) found that U.S. teenagers are only in the middle of the pack when it comes to “financial literacy” or knowledge about how money actually works in the world — this includes such important concepts as money management, earnings, investment and more.
While being “average” is not always so bad, when you consider this knowledge (or lack thereof) in contrast to a still-struggling U.S. economy and quickly amassing consumer debt in other areas, it takes on a new face. The ability to understand financial concepts and carry them out is at the crux of any successful life and career. As parents, we try to teach our children right from wrong, morality, and common sense. Financial literacy has to be included in that mix, but that is easier said than done.
Teaching Teens by What You Say
Talking about money is important. In fact, the more you do it, the more confident your children and teens will become in handling money themselves. Talking about money, however, does not count if all the talking you do is worry or fight about it. Instead, just like the birds and the bees or bullies at school, schedule sessions in which you discuss things like saving for college, budgeting for household expenses, and setting financial goals. The impact can be enormous. Just take a look at these statistics from a 2014 survey by T. Rowe Price:
- 58% of kids whose parents discussed college savings actually save for college only 23% of kids whose parents don’t have this conversation do the same.
- 60% of kids say they are “smart” about money if they come from a home where budgeting is discussed versus 34% of kids who don’t have that benefit.
- 60% of kids who talk to their parents about financial goals identify themselves as “savers” versus 46% who do not have those discussions.
Don’t think of imparting financial wisdom as a lecture, either – no one has fun in those situations. Instead, try to include teens in the actual accounting for your household. Couponing is an excellent example of how you can do just that. When you work together to find deals and watch savings and stacked offers add up, it invests them in the process and teaches valuable lessons about how to think before you spend.
Teaching Teens by What You Do
“Monkey see, monkey do” is one of those phrases that has plagued parents since their precocious little toddlers learned to talk (4-letter words, anyone?). When it comes to finances, however, a potty mouth is the least of your worries. The way that you handle and treat money, even when you think your teens aren’t looking, has severe implications on how they will do so themselves.
There are several, important scenarios, some good, some not so much, where you need to specifically consider how your actions impact your teen’s perception of spending and money. For example, do you frequently go out to eat? Even if you can afford to do so, when you do this, you set a standard and teens assume this is the norm. When you do go out, talk about it, and explain why it is the best solution for your family in terms of cost, in terms of both money and opportunity costs.
Another example is vacations and luxury goods. As middle aged adults, many people have saved and budgeted for years in order to allow for these benefits. However, kids, particularly self-involved teens and young adults, don’t see all the work and years of sacrifice that came before those yearly cruises. This is why talking with your teens is so important (see above), rather than just assuming they “know” why you can afford a designer handbag and they cannot.
Talk, Talk, and Talk Some More
At this point, the theme here is clear – you need to engage your children in conversations about money. However, rather than just the “talk” about finances, make spending, saving, and the concept of “earned” luxury in the conversation daily. You cannot sit down to the table and talk about budgeting one week and then lay out thousands of dollars for an island vacation (financed on a credit card) the next. Make sure you are living within your means and, likewise, explain large purchases as you make them so teens get the cause and effect relationship between smart money management and luxury purchases.