Parents are our teens’ primary financial educator.
Yet, we do relatively little to support parents in this area. We don’t even have a contemporary collective agreement on what great parenting in this area looks like. One thing we DO know is that the way WE were taught about money does not work anymore. We can just look at society today and see that we are financially illiterate, as a whole. If we really want to create a generation that is prepared to meet the financially reality of adulthood with confidence and competence, let’s start with the most obvious point: our teen’s financial future is in our hands.
What’s needed is a BRAND NEW WAY to teach our teens about money. We don’t need MORE of what we used to do, we need something totally new.
For example, here is a model for allowance that is a completely different from any other you’ve seen. Consider the impact on your teen if you implemented it.
Tie your teen’s allowance to money management skills! Not to chores, not to grades, and not to age.
It makes perfect sense, because the better we are at managing our money, the faster it grows. So, it’s a true model of real life. After all, in real life, we don’t get a raise because we have a birthday, we don’t increase our net worth because we do the dishes, and we don’t get a raise when we do what is assigned to us at work. We DO, however, increase our net worth when we manage our money well.
To make this system work, teach your teen to get raises in allowance by rewarding performance in money management. Help them be successful and reward them with raises.
Start by outlining an excellent, age-appropriate, money management strategy and checking in with your teen once a month. When your teenager shows you that he or she completed the following TWO tasks, give him a raise. Of course, you can modify or break this down to make it a progressive and step-by-step process that makes sense for you and your teen.
Here’s a list of the TWO tasks you could expect them to demonstrate every month:
- Track your money. Have your teen keep a money journal or use an online system, like MoneyTrail.net, Mint.com, or Tykoon.com for tweens. The object of this activity is to track NET WORTH, not spending. Teach your teen to track progress toward a goal, and the goal is to spend, save, invest, and give in a managed way that results in wealth building. This is probably the most fundamental money management strategy that anyone can use that has the most profound results. Every month, sit with your teen and look at their spending, saving, and giving records. If they are complete and if there is net growth from last month, give them a small raise in their allowance.
- Spend, save, give, and invest intentionally. Teach your teen this money management strategy and watch their money start to work for them now and for the rest of their lives: It’s called the Silo System.
Here’s the most basic outline of the program. Every amount of money your teen receives is split into 6 categories like this:
- Necessities: 50% (This could be a checking account with a debit card.)
- Give: 10% (There are many ways to give online. Check out Network for Good.)
- Emergency Fund: 10% (This is an account that your teen is building for that rainy day when you-know-what hits the fan.)
- Financial future: 10% (This is your teen’s savings for later in life. This money goes into an interest-bearing account. When it grows to a certain amount, move it to a higher yield account.)
- Play: 10% (This is pocket money just for fun, spontaneous stuff.)
- Big Ticket Items: 10% (This is for expensive items your teen is saving for.
Find a system that allows your teen to divide his/her money this way. Make it really workable. Use bank accounts and online tools. Take it step-by-step, and add one or two parts every month.
By making allowance tied to money management, you create a real-world experience and your teen is guaranteed to have habits in place that will serve him or her now AND for the rest of their life!
Easy Action: Learn about the Curve and two key elements of personal finance from Jay Sanders’ blog, Life on the Curve at http://jaysanderscpa.com/. He offers a wealth of information for parents and teens.
Resource at Your Fingertips: You can use a free, online tool for tracking your money in the six categories at www.moneytrail.net.
Jill Suskind, M.Ed. is a 25-year veteran public school teacher. Since 2007, she has been working with parents and their teens, providing innovative, practical, and effective resources and guidance for preparing teens for adulthood with positive money habits and attitudes. Jill owns and operatesWealthQuest for Teens, Ltd., and Your Teen’s Money Skills, Inc, and currently serves as a member of the Financial Literacy Committee of the National Association of Estate Planners Council.
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