Teaching your teen about money management could pay off in the long run

by Jim Sloan

You may be so busy keeping track of your own investments and looking for the best CD rates that you've overlooked a more basic form of financial planning--teaching your teenager about how to handle money.

Teaching your child how to wisely manage their money--be it savings accounts, a money market account or some other kind of investment--could conceivably save you a lot of money down the road.

According to a new survey from the Allstate Foundation and Junior Achievement USA, 80 percent of teens say they have been motivated by the recession to learn more about managing their own money. The teens say their No. 1 source of information about financial planning is their parents, but less than half say they've discussed money management, from interest rates to investments, with their family.

They survey involved 1,000 young people, ages 12 to 17, living in private homes in the U.S. Half were males and half were females. Here are some of the findings:

  • 90 percent say they'll put more into their savings accounts and 78 percent said they'll spend less as a result of the recession between 2007-2009.
  • Half say they aren't sure how to use a credit card effectively, and a quarter think they should get their first credit card by the time they reach high school.
  • An increasing number are using savings accounts, a checking account, a debit card or a credit card - 73 percent in 2010, compared to 66 percent the year before.
  • Nearly 90 percent feel they will be as well off financially as their parents.

According to Junior Achievement, it appears as though parents are reluctant to talk money with their children--even though it's "the topic that today's teenagers desperately need to learn from their parents," Junior Achievement president Jack Kosakowski said.

Financial training for teens

Allstate and Junior Achievement have put together a series of online lessons to help teenagers understand such basic financial matters as interest rates, bank rates and investments. The lessons are geared to a variety of ages, and cover such concepts as saving, spending and sharing.

Middle school students, for instance, can create personal spending and savings accounts plans utilizing different payment methods. High school students can develop real-life scenarios for such things as buying a car or paying for college.

Helping your teenager develop good financial habits in middle school and high school could put them in a better position to ensure a more successful financial future when they reach their 20s.

According to experts from Consumer Credit Counseling Services, a nonprofit debt-counseling agency, it's important for teens to learn to tell the difference between wants and needs, and the best way for them to learn that is to make them responsible for something like school supplies or auto insurance.

CCCS recommends teenagers keep track of their spending by writing it down every day. Another useful lesson is to have a savings account set up and to make sure you are making regular deposits--before you spend your money on anything else. This is part of the "pay yourself first" school of thought that has taken hold in the U.S. since the recession left many people without enough in their savings accounts or money market account to cover emergency needs.

All these lessons will set your children up for their 20s, when the real financial challenges begin.

Setting goals and saving money

According to TheStreet.com's financial experts, people in their 20s should learn:

  • To live below their means and establish a monthly automatic transfer to create a short-term cash reserve account and then a more long-term financial savings account.
  • Establish short-term and long-term goals, such as saving to buy a home or to further your education. Having a goal ensures your success more than just saving for the sake of saving.
  • Invest according to those goals, allowing yourself to be more aggressive in your 20s than you will be later in life as you approach retirement.

Experts agree that an important message for your teens is to encourage them to invest in their own skills by continually spending to improve their knowledge and abilities. Younger workers should be focused on self-improvement early on because in later years, you're more likely to get married and have children. At that point, you'll become more focused on them.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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