You probably suspect that your teen doesn't listen to a word uttered by anyone old enough to have a retirement account, but more states think they need to hear a few lessons about managing money before flying the coop.
According to a recent USA Today article, the number of states requiring personal finance classes in high school has gone up. Last year, the number rose to 14 states, double the number requiring such classes only two years ago.
That's a promising trend, but still not an avalanche of interest. Consider that high-schoolers heading to a job or college need to know how to balance a checkbook, deal with credit cards, and save for their futures, and they're earning failing grades right now. On a 2006 quiz administered by the Jump$tart Coalition for Personal Financial Literacy, high school students scored an average 52.4% correct.
Without a little book learning, it looks like some students may have to learn their financial lessons the hard way.
If you don't live in one of the few states that make impatient high-schoolers sit still for a few money management classes, you can still help your teen get off on the right financial foot. Consider some of these ideas for squeezing a few financial lessons into your teen:
- Be a good money role model. Your children may not listen to you when you tell them to clean up their rooms, but they're watching all the time. If they see you reach for the credit card for every purchase, make sure that they understand there's a budget behind that piece of plastic and that it's not just free money. Or exercise your debit cards, checks, or cash.
- If your teen wants to get a part-time job, make money management a requirement for employment. Consider helping your teen establish a checking and savings account, and you'll be introducing her to a lifetime skill of sorting through a baffling array of financial products.
- If your teens have a part-time job, consider introducing them to credit cards while they're still under your roof. Once they get to college, they may be better able to deal with the onslaught of credit card offers. If they have a checking account, consider starting them off with a debit card. Then introduce them to the adult version of a student's permanent record -- the credit report. They may be more likely to keep that record clean, even if they could muster no more than a C in physics class.
- Consider setting some rules for how your working teen allocates his or her paycheck. Introduce your little instant-gratification-seekers to the concept of saving for a rainy day. They may not like it, but they'll probably appreciate it later if you require they set aside a certain percentage for saving and a certain percentage for charitable giving. They may be less resentful if you can show them you follow the same rules every month, too. Let them spend their discretionary money however they want, even if it's baffling to you why anyone would want $200 athletic shoes.
- Give your teens a discretionary allowance. If you're being pestered at every turn for new clothes, video games, sports equipment, or some other teenage delight, consider giving your little consumer a monthly or quarterly allowance. Figure out what will fit in your budget, then hand the money over to your son or daughter. Leave it to your teen to make their own choices, but don't dole out any more cash after the money's gone. This will get the concept of budgeting across faster than any boring lecture.
Among the many unfair advantages of youth, teens also have time on their side. Us old folks may not have decades and decades left to invest, but consider the 18-year-old who puts just a little money away for the future. If our hypothetical Teen Tom invested $1,000 in the stock market today, he'd have $117,391 in 50 years.
That assumes Teen Tom is a smart investor and is able to earn about 10% each year, which is a bit above the market's historical average. There's no guarantee of everyone being about to do that, of course, but we can say with certainty that it's easy to harness the power of the market's average returns. Consider introducing your teen to a low-cost equity index fund like the Vanguard Total Stock Market
So, if all else fails, entice your teens with the idea that a little financial smarts now can make them a millionaire later if they take advantage of all that time. That's the first lesson at The Motley Fool's Teens & Their Money Center.
For more teenage Foolishness:
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Fool contributor Mary Dalrymple does not own stock in any company mentioned in this article, and she welcomes your feedback.