Paul Ferraresi

The inner life of an adolescent is wondering: Who am I now? Who will I be in the future? How can I develop skills to handle everyday challenges, problems, and decisions? As parents, you have an opportunity to help guide your children through the ‘Tween (9 to 12) and teen years to a responsible adulthood, learning how to relate to money in healthy ways. “Tweens and teens are all ears and eager to learn about the provocative world of money and how to make money work to their benefit. But by the time they reach middle- and high school age, few, if any, have actually learned about the power of good money management from there own parents. Most parents don’t talk to their children about money. In fact, in many homes the only message the kids get about money is one that says, “In our home, we don’t talk about money, and in our home we don’t talk about the fact that we don’t talk about money!” Even in families that occasionally talk about money, parents usually don’t explicitly teach their children how to manage money.

If you want to know how to teach their kids to be responsible with money, here’s something to take home and share with them. The secret is teaching kids to be financially responsible and to be able to realize their own personal dreams is understanding choice: the concept of setting and publishing short and long-term goals, and having the discipline to save early and often. Hence, I offer these tips to help parents talk to their teens about good money management.

Tips for Parents

Start by teaching the four money choices: save, spend, donate, and invest. Spend and invest already intrigue and engage many ‘tweens and teens. But it is the understanding and use of saving and donating as well as spending and investing that will help them to succeed financially and become good stewards of the money in their lives.

To raise saving and donating to the same level of importance for young people as the more popular choices of spending and investing, they need to see that the payback from these activities is just as important and just as much fun as the payback they get when they make a purchase or play a stock market game in school. To make saving “rock” as a money choice in their life, introduce an incentive plan. Match saving dollars to help them meet a short-term goal faster. Then show them the power of compounding, which is discussed below. Be sure to give them the brief multiple choice test we have included and you are sure to rock their world.

To make donating a provocative money choice for ‘tweens and teens, offer to work side-by-side with them on a donating goal. Ask them to present the charity of their choice to the family over dinner so that members of the family can kick in time, talent, or money. Your involvement lets them know that you think what they have set out to do is worthy of your time or money. The simple involvement is a huge boost to their self-esteem and development of their own identity. They know your time is precious and will be intrigued by the offer that they and their activity will be the center of your attention.

Help your child set goals for each money choice. Take out eight pieces of paper. Write “save” on one sheet, “spend” on the next, “donate” on the third, and “invest” on the fourth. Create another set the same way. Now, keep one set and hand the other set to your child. Take the “save” sheet and draw a short-term money goal (things we want or need one year from today)

Notice I said draw the goal. You will both enjoy and inspire each other with your drawings. Also, drawing adds a bit of levity and humor to somewhat intimidating and dry moment.

Once you have drawn the goals, talk about them. Do the same for “spend” and “donate”. For “invest,” set a long-term goal (something you want or need ten or more years from now). Again draw! Compare goal-setting drawings and discuss. An important key to financial literacy is to consciously link your money to your goals in life. Actually sharing or publishing the goals to each other will help your child own the goals and give the goals a much better chance of being realized.

Now help your child publish his or her goals. Both of you should take the four goal sheets you have created and post them somewhere where both of you are sure to see them every day—by the computer, on the refrigerator—anywhere they are available to the two of you and, just as importantly, for others to see. We like to tell ‘tweens and teens to publish their goals talking to just about anyone who will listen. If your child lives on the Internet, suggest that he or she publish the goals on their blog. (For the Internet challenged, a blog is basically a journal that is available on the Web. The activity of updating a blog is called “blogging” and someone who keeps a blog is a “blogger.”) This kind of verbal articulation of your child’s goals will bring the goals to life. Others who hear them talk about their goals may even affirm those goals by helping them out with the realization of the goal. In a recent workshop that conducted, one 16-year-old set a short-term goal of getting a new paint job on his car. After the workshop he told all of his friends about his short-term goal. A friend provided a lead to someone who did that kind of work and he reported that he got a better deal because he was referred.

Get your child to save now. You can connect your ‘tween or teen with the power of saving by showing them the power of compounding. Young people are, well, young. This will be a huge yawn for kids if you do not break it down into financial terms they feel are within their control. Ask your child to record what they spend on things they want every day for a week. They can even estimate at the end of each day before they go to bed what that dollar amount is. Typically these expenses are in the “I want” category, such as snack food or a fancy coffee drink, not the “I need” category. At the end of the week sit down and see if they have spent at least $4 a day on “I wants.” Chances are they have spent that, and then some. Then, ask them to quickly answer this multiple choice test without using a calculator:

At age 18, you decide not to buy soda or snacks at the school cafeteria anymore. You save $4.00 a day. You put $4 a day in a savings account at two percent annual interest and leave it alone. At age 67, your savings is:

1. (a) $1,159
2. (b) $25,355
3. (c) $71,540
4. (d) $319,159

Answer: (d), or $319,159. Note that $71,540 is from the daily deposits and the remaining $247,619 is interest!

Once you tell them the answer, or they realize it themselves, their eyes will widen with renewed respect for the power and importance of saving. This is a big number for adolescents. You might need to monitor this daily deposit until the “habit” kicks in. It is worth the hand-holding involved if your child becomes an instinctual accumulator.

I encourage you to show your children the secrets of success. The adolescents we have worked with are in awe of people who are ready to unlock the secrets of money management for them. They listen.

Lastly, purchase the book The Richest Man in Babylon by George Clason. Read it and explain the principles with your kids.