Distinguishing Between Needs and Wants

When telling your teen to put aside savings and budget her money, expect resistance—“If it’s my money, why can’t I buy what I want?” That’s the time to chat about needs versus wants, says Jayne Pearl, author of Kids and Money: Giving Them the Savvy to Succeed Financially. You can explain it simply: “We need shelter over our heads, we need food, clothes, and medical attention when sick, but everything else is pretty much a want,” she says.

This is tough for teens to understand. To them, “want” automatically means “need.”

Preston B., a father of a 13-, 18-, and 21-year-old, lives in an area where kids tend to get new BMWs at age 16. When his older kids turned 16 they got “old” new cars, and they grumbled. “Emphasize what they are getting if they focus on what they’re not getting,” Preston says. He told his teens: “You’re getting a free car and insurance. Maybe it’s five years old, but it’s a nice car.”

Another way he’s torn down any sense of entitlement his kids may have is by not showing any himself. “By having a very consistent pattern of not buying the most or the best of anything, they just learn that is how our family lives – we don’t spend the maximum that we could on anything,” he says.

 

Model Good Money Habits Yourself

Teaching by showing and doing is probably the easiest way to help teens learn. “There are many different ways that you can expose your teen to the world of finance through your own day-to-day activity,” Schwab Pomerantz says. “You can show them your IRA statements to show how you’ve been saving on a disciplined basis and choosing your investments,” she suggests.

Jessica J., 17, says her parents did this. “They would sit me down, and we’d go through all the bills,” she says. “I knew my parents made a lot of money, but until then, I didn’t know we also had a lot of bills,” she says.

And forget about, ”do as I say, not as I do.” “You can constantly talk about being financially responsible, but if you aren’t actually doing it yourself, your message won’t get through”, Schwab Pomerantz says.

 

Learning From Money Mistakes

Tim P., a father of a 15-year-old and a preteen, teaches from his mistakes. “I’ve made my share of money mistakes – mostly those that revolve around credit cards – and I’m very candid with my kids,” he says. “We talk about good debt (real estate, for instance) versus bad debt (credit cards used unwisely). “I’m trying to instill the sense that money is just a thing –neither good nor bad – but how you use it can be positive or negative.”

Let your teen learn from his mistakes, too. If she burns through her allowance before the middle of the month and comes to you for more, say “no”! “If you bail them out they are more likely to do it again,” Schwab Pomerantz says. “However, if you let them experience the repercussions of making a mistake, they are less likely to make that mistake again.”

Jessica knows this. “The first couple of times I splurged my paycheck away, my mom gave me extra money to do the things I needed,” she says. So she figured she could do what she pleased with her paychecks and turn to her folks for extras. The third time she went to them for money? No deal. “I then realized I had to do what I needed to do with my own money,” she says.

Even though teens do learn from mistakes, it doesn’t mean you shouldn’t try to prevent mistakes. When Ben C. started making money as a teen, he knew exactly what he wanted to do with it. “I wanted to just spend the money,” he says. Fortunately, his parents wouldn’t allow that. “My parents instilled a strong discipline to save and invest the money wisely,” he says.

It’s paid off. Ben became a millionaire entrepreneur while in his teens, and now, at 23, handles his own money. “My money is doing just fine – thanks to the values my parents have taught me,” he says.

That’s the goal, Pearl says. “You want to get teens to where they’re able (and willing) to make responsible money choices as adults.” Once your teen is able to realize his mistakes, make steps to correct them and prevent them in the future, give yourself a pat on the back. You’ve created what will likely become a financially savvy adult!

 

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Issue: May 2008