10 Ways to Help Your Teens Spend Money Wisely

Creating good spending habits is a very valuable skill for anyone.

Did you have good habits before you left home? If not, what kind of difference would it have made in your life? In the current world economic environment it is more important than ever to get your kids to understand the true value of money. With interest rates for saving low it is critical that as your kids look to move out of the family home and into their new life they can manage their financial obligations and be able to afford the essential items for life. When still young it's a great time to start showing them the costs of things and getting them to manage money early in life. Here are a few powerful concepts that can make a huge difference in the way your teens manage their money:

1. Cash Is Still King

Why? Because your brain has a harder time handing it over. People have been shown to regularly pay up to 20% more for an item when they use plastic, as demonstrated in a study by MIT. It’s a purely physiological reaction we need to be aware of and learn to manage. The pain mechanism in your brain (insula) fires when you use cash; it doesn’t when you pay with plastic or technology. Help ensure your teens get experience using cash so they learn to make good buying decisions before going to plastic. If they have a certain cash amount for spending each week, they are less likely to go overboard on lattes and chips.

Key concept: People spend less and tend to make wiser buying decisions when they use cash. 

2. Cut The Temptation

Help your children learn the old (but good) idea of only going shopping when they need specific items. If they have free time, it will be much more beneficial for them to hang out with their friends outdoors, especially if they can do some type of sport or physical activity. The more they go shopping and see items they desire, the more they will want them, whether they need them or not. Because of the way the human brain is wired, the excitement over desiring something is actually a more powerful feeling than the emotion of acquiring the object of desire. This is what helped us catch our food in ancient times, the motivation had to be powerful.

3. Help Them Set Goals And Save For The Items They Really Want

Setting goals and saving will help prevent your teens from wasting money on unplanned impulse buys, the financial destroyer of many well intentioned people of all ages. Self-control has been shown to be the major trait in children which predicts financial success in adults. It’s been found to be more influential than IQ, school grades or socio-economic status on long-term financial well-being. Saving is a fabulous way to enhance your self-control, so if your teen doesn't have a savings account now, encourage them to go and open one.

Tip:  Be sure their ATM card is connected only to their chequing account, not their savings account. Otherwise their savings can get drained as well when they are out with their friends and enjoying the thrill of using their own card.

4. Create A Spending Plan (way more fun than a “budget”)

Creating a spending plan provides your teen the opportunity to look at their income and expenses and begin to learn how to manage their cash flow (another essential financial skill they should learn before they leave home). This should be incorporated into their own way of saving and managing their money so they are able to save for important items and not spend all their income. A good budget app works great as a money management tool. 

5. File And Track It

One way to become more responsible with money is to understand where it’s going and if you’re happy with your decisions. Encourage your child to keep their receipts in a file so they can return an item if needed. The simple exercise of keeping their receipts and writing down what they spend will give them an opportunity to reflect on their decision and how they feel about it. This is a major step in learning how to make good decisions in the future. 

6. Decrease Shopping Peer Pressure

People have been shown to buy more expensive items if other shoppers are in close proximity. It is a major cause of overspending and something most people don’t even realize. Let your child know that they may be better off shopping alone or with you when they need to purchase items, it could save them a lot of money in the long run.

7. Discuss The Cost Of Things

People in the financial and teaching professions say that the teens they work with do not have any idea what the cost of things are, outside of their tech toys, and maybe clothes. This is one of the reasons young adults go into such deep debt when they move out on their own; they have never been exposed to the reality of what life costs, or managed their own financial decisions. It is critically important that your child begin to be involved in the discussion and purchasing of various items like food, clothing, personal toiletries, car related expenses, insurance, sports activities and cell phones. The National Endowment for Financial Education released results that showed that 59% of adult children aged 18-39 not attending school were being subsidized by their parents for living expenses like rent, mortgage, transportation and food, as well as medical bills and spending money.

8. Ask "How Many Hours Of Work Is This Item Worth?"

Determining the worth of something as it relates to their hourly wage is a great exercise if your teen has started working. If you use this method of identifying value whenever  shopping it really makes you think before purchasing anything. Time is valuable and most people would not want to waste it on something they might have to work eight or ten hours to pay for. Make it a habit to think about the value of something before “putting it in the basket.” Help your teen begin to get in the habit of calculating out the full cost of the item plus taxes and then how many hours they would have to work to pay for it with their after-tax income. This way, they aren’t “buying without thinking” – a common bad habit with the increased use of plastic.

9. Help Others

Giving time and money to charitable organizations changes the perspective of a person forever. When a teen takes the time to see how others live, they appreciate their own lives more and are less likely to waste money. They also become aware of how much impact they can have on their world, how they can truly make a difference. It’s hard to complain about not having a new iPhone if they just spent three hours with someone who just lost the ability to walk or doesn’t have money for food. Helping others brings out the best in people and is one of the greatest joys in life. Teens can benefit greatly from this type of opportunity.

10. Read Through The Contracts

Whether it is with their first cell phone or credit card, show your teens the importance of reading, and understanding, the fine print in the legal contracts that accompany them. They should understand the interest rates, and the implications of paying late or only paying the minimum amount. Also be sure they understand the payment terms. It’s not uncommon for teens to initially rack up $500+ bills when they first get phones, simply due to the fact that they didn’t understand what was covered in the contract.

The Bottom Line

Teens that focus their energy on achieving life goals (athletic, academic, charitable etc.) are shown to be much happier and more fulfilled than teens that spend large amounts of time focusing on material items they want to own. When your teens do want to purchase items, help ensure they think the decision through. The process of learning how to make good decisions comes with practice and thoughtful consideration of previous outcomes.

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