If the recent economic downturn has left you reeling, don't feel alone. In fact, if there are any parents who aren't frightened by the state of the economy, they probably should be, says Lewis Mandell, Ph.D., Visiting Professor of Finance and Business Economics at the University of Washington. “Everyone is affected. Whether parents are worried about keeping their house or their kids’ college savings, parents everywhere are affected to some degree,” he says.
Parents instinctively want to protect their children. They don’t want to share their stress about finances, but, says Sarah Bulgatz, Director of Corporate Public Relations for Charles Schwab, it's important that they do. “Teenagers will benefit from having a clear understanding the household income and expenditures,” she says.
Schwab’s field surveys have indicated that money management is one of the top priorities for 60 percent of teens, yet two-thirds of parents believe their teenagers are not interested in learning about personal finances. “This is an unfortunate miscommunication,” Bulgatz says, “because there are a lot of missed opportunities for teaching and learning.”
Miscommunication, however, is not the only problem. It’s one of the great taboos in the United States to talk about money, particularly with children, and many parents tend to keep their finances a secret. Shirley Peterson, Extension Advisor of Family and Consumer Sciences at the University of California Cooperative Extension, says this is a trend that has to change. “Teenagers, and even younger children, should share in the responsibility of the household finances,” Peterson says. “We encourage parents to have their children share in the bill paying and decision making when it comes to household expenditures.”
Mandell says it’s particularly important for parents to involve children in family finances in this economic climate. “I don’t think any of us know just how long or how serious this downturn is likely to be,” Mandell says. “But if there’s any lemonade to be made from these lemons, it’s that we’re in a position to help our young people come out of this downturn better savers and smarter consumers than their parents.”
The holidays offer meaningful opportunities to enter into financial discussions with teens. “Parents should be talking to their children about the holiday season—lowering their expectations and explaining why these expectations have to be lowered,” Mandell says. “I’ve always found that openness and honesty are the best policies. Parents are often amazed by children’s resiliency and also their ability and willingness to pitch in when they foresee that there is a genuine problem."
“We certainly don’t want to stress the children that there’s not going to be food on the table or that they’ll be losing their homes,” says Shirley Peterson, “but we do want our teens to be aware of the economic crisis and how it will affect the community and the family—how it will affect the family this holiday.”
How should you broach the subject of the economy? By teaching kids how to take control of income and expenses—which experts agree is the key to financial success. Here are a few tips for helping teens understand the importance of money management.
Family Goal Setting
Setting financial goals as a family can be a great way to solve a current money problem and involve the whole family in cutting back on spending. Goals can be small (paying off a small credit card balance), or large (saving for a family vacation). “The idea is to get children and parents to work together toward a common financial goal,” Peterson says.
Paying bills will help teens develop healthy financial habits. Recording debit card receipts, balancing the family checkbook, and understanding the household income and expenses will prepare teens for the future by learning important money management tools.
Teen Credit Cards
If teens have credit cards, they should be responsible for paying the bills on their own. Credit cards can be a good way to build teen’s individual credit, but parents should set ground rules about acceptable purchases and a monthly limit. There should be a clear understanding that the credit card will be taken away if the rules are broken.
When teens have jobs, it’s important to discuss upfront how that money will be spent. Parents should help children budget their money—how much they will save (and to what end), how much they should budget for entertainment, car payments, etc. It’s also important for children to be responsible for their own money. Teens should not give their checks or cash to their parents to deposit; they should have their own bank account and should deposit and withdrawal money on their own. This will give them a true sense of ownership and responsibility. In cases where children’s income will be contributing to the household income, this should be made clear from the outset.
Parents can use allowance to help young children learn about the power of budgeting. Kids learn that they can spend their allowance weekly on small treats, or they can save their quarters or dollars for a special larger purchase.