Although becoming financially savvy is often something we associate with later stages in life, teaching your kids the importance of financial independence from a young age can give them an advantageous head start.
Tim Morris, former Director of Franchise Success at Tutor Doctor, has over twenty years experience with both the finance management and hospitality fields. As Tim explains, many students leave high school with little to no knowledge of how to manage their finances.
“When I was living with my parents at home, I had a couple of part time jobs,” Tim recalls. “I used that money I earned just to waste, really…on things which had no value whatsoever.” Teens often have little to no expenses of their own, so money earned from chores and part-time jobs is often seen as expendable income. Ideally, we want our kids to start looking at income from a more long-term perspective.
“I was never taught by my parents exactly what I should do with the cash that I earned,” Tim explains. “When I had my own two children, I realized that it was going to be valuable to them…understanding how money works in their lives would help them as they grew into adults.”
So how can we start empowering teens to be financially responsible from a younger age? Perhaps the most significant lesson is financial accountability. If a teen decides to spend their entire allowance in an irresponsible way, our goal as parents is to get them to realize the direct effects of their irresponsible spending habits. Although this may seem like a bad thing, it’s better for teens to make these mistakes at a younger age with smaller amounts rather than later in life when larger purchases are on the line.
A part-time job is an excellent way to get teens thinking about their finances. Not only does this experience teach them the value of money first-hand, but also emphasizes how long a paycheck can take to earn. “The first thing is encouraging them as early as possible to find part-time work,” suggests Tim. “[It starts] to teach them the concept of handling money at a very early age.”
Financial management also provides valuable lessons about the benefits of saving, planning, and most importantly – patience. Encouraging your kids to “save up” and work towards a goal is an excellent way to emphasize how responsible money management and planning can pay off. As Tim explains, “The key is teaching them how to manage their money for things they may want in the future.” Learning how to budget and seeing first-hand how cash flows in and out of their account provides teens a realistic snapshot of financial planning and why it’s so important.
So how can we get our kids to start planning with their money? A great way is to show how taking smaller portions of their income and setting it aside can be a valuable saving strategy. “For example, just by taking a small amount of what you have and putting it to one side for something in the future – and mapping that out,” elaborates Tim. “It’s amazing, the ‘Eureka!’ moment that I’ve seen in both my kids eyes when they see, ‘Oh, if I just do this for the next two years, look how much I’m going to have!’”
Financial independence and responsibility can take years to become comfortable with, but introducing your kids to these concepts at an early age is always a good idea. Ideally, we want our kids to understand the importance of money management early on rather than later in life when the stakes are higher.
We recommend having conversations with your kids where they can ask questions about money management. “As parents, be supportive of your children and [encourage] having an open dialogue,” says Tim. “And telling the truth about money. Money can be really positively powerful, or it can be hugely negatively powerful.”
For more information, listen to our podcast episode Empowering Your Teen to be Financially Independent.