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Ten Ways to Talk with Your Teens about Money
It may seem like your teenagers turn a deaf ear to everything you say. But when it comes to financial matters, America's young people are listening to their parents more than we might think.
The recently released third annual survey of teens commissioned by Merrill Lynch, which designates April as International Saving Month each year, found that advice from adults about saving and investing greatly influenced the behavior of many teenagers.
In the survey of 515 teens between the ages of 12 and 17, 41 percent of teens asked a parent or other relative for advice on where to invest or save money, while another 8 percent asked a friend or family friend. And, 57 percent of teens said that a parent or relative opened a saving account for them.
While these statistics are encouraging for many parents, they may cause guilt feelings for others. Significantly fewer teens this year than last year (56 percent vs. 41 percent) sought a parent's advice on how to save money. Perhaps your teen doesn't feel comfortable approaching you about money matters, or maybe you have been reluctant to broach the topic.
What Teens Need to Know
Our survey indicates that many families are discussing helpful money management topics. How would your family compare to those of the teens we surveyed?
Frequency of Household Discussions on Specific Money Issues
| |
Frequently |
Sometimes |
Never |
| How to spend money more wisely |
51% |
38% |
11% |
| How to be a better saver |
41% |
44% |
15% |
| Paying for a college education |
26% |
47% |
27% |
| Investing money |
29% |
41% |
30% |
| Using credit cards responsibly |
8% |
24% |
68% |
You may know that you should discuss money with your teens, but you may not know how. Here are ten aspects of financial management that you and your teens should discuss.
- Budgeting: Help your teen construct a simple budget that tracks income and
expenses, so they can see where their money goes and how much they can save.
- Saving to meet goals: Discuss your teen's short- and long-term goals - whether a
computer game and clothes, or a car and a college education. If saving has been a
problem, go through the budget to see where spending could be tightened.
- How to save and invest: Because of inflation, the money your teen saves today may
not buy as much in the future. That's why earning interest is important. Some teens
don't grasp this concept. In the survey, almost 67 percent of teens surveyed said
checking or savings accounts was the best vehicle for saving money. Yet 13 percent
said saving with a piggy bank - a method that doesn't earn a dime of interest - was the
best way.
A savings account is a good starting place, but some teens are interested in stocks
and stock mutual funds, investments that offer the potential for higher returns. In the survey, 12 percent of teens said they owned mutual funds, while another 12 percent
said they owned stock. If you're going to advise your teen on investments, you'll have
to be knowledgeable yourself - take the time to bone up on investments like stocks,
bonds and mutual funds.
- Earning money: If your child's expenses exceed income, or if he or she has
significant long-term goals, talk about ways to increase income. While you don't want
jobs to negatively affect your child's school work, many teens can handle both
responsibilities. In our survey, 72 percent of teens reported doing odd jobs to earn
money and 34 percent of older teens said they had a full or part-time job.
- Taxes and inflation When teens get their first paycheck, they are often shocked at
their take-home pay. Using their pay stub, talk about the taxes that are taken out of
their pay. Extend the discussion to show how inflation can have a depleting effect on
income over time.
- The wise use of credit: Every year, our survey finds a widespread lack of
knowledge about credit cards - this year, 68 percent said they have never discussed
using credit cards responsibly with their parents. Discuss choosing a card with the
lowest interest rate and paying the balance in full each month on time to avoid interest
and late fees.
- Buying and maintaining a car: Thirty percent of teens in the survey who said they
were saving said they were saving to buy a car. But often teens don't understand the
financial impact of a car. Discuss buying a used car versus a new one; leasing or
buying; the effect of an auto loan's interest expenses on total cost; and insurance,
maintenance, and fuel costs.
- Paying for college: In our survey, 42 percent of those saving said a college
education was a goal. But fewer teens this year (26 percent vs. 33 percent) reported
frequently discussing saving for a college education with their family. Decide whether
your teen will pay for any part of tuition and room and board, books and supplies,
clothes, a car or other transportation and living expenses, and then help your teen
budget.
- Living on your own: Help your teens prepare for living on their own by discussing
anticipated monthly expenses, including rent and utilities, telephone, cable and
Internet access, food, household supplies and laundry costs, transportation, and
renter's and auto insurance. Don't forget to include security deposits, utility deposits,
telephone or cable hookup charges, and moving expenses. Create a household
budget to see whether your teens can expect to earn enough to live as they would like,
or whether they need to share living expenses with others, or even wait awhile.
- Entrepreneurial pursuits: Your teen's entrepreneurial bent is worth encouraging.
Whether they want to create their own business now, or dream of working for
themselves once they enter the adult work force, discuss ways to work toward this
goal.
Teach Teens to Save
In the survey, 59 percent of teens said they usually save half of their money, and 24
percent said they saved all of their money. These are encouraging statistics. Yet 17
percent reported spending most of their money as soon as they got it. Where does
your teen stand?
Help your teens acquire the practice of saving by engaging them in practical
discussions about managing their money. Saving is a habit teens are likely to carry
into their adult years, giving them a head start toward their own financial security.
Print out our Bill-Paying Checklist!
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Click here to read other articles by ARA.
Copyright © Euna Kwon. Euna is Manager of Education Services for Merrill Lynch's Private Client Group. Reprinted with permission from ARA.
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