As seen on The Rhode Show
Summer vacation is here. The kids may be out of school, but this time of year is full of valuable opportunities to teach your kids, especially teens, about money.
Teens and Summer Jobs
If you have a teenager at home who plans on taking on a summer job, there are several practical lessons you can instill to teach them good money habits with real-world implications.
The Paycheck – Sit down with your teen and go over their first paycheck. It will provide a dose of reality when they first see their taxes taken out. Take this opportunity to discuss the difference between net pay and gross pay, and the tax system in general.
A Bank Account – Now that they are making money, your teen needs a place to save it. Shop around together for a bank account that is right for them. Use this process to help them understand the differences between a savings account and a checking account. Encourage them to actively use both accounts and create saving and spending goals for the money they earn this Summer - putting a consistent percentage of each paycheck into savings.
You should also take this opportunity to teach your teens about fees and interest – especially about overdraft fees and the consequences of neglecting to manage their money responsibly.
Money Management Apps – With teens on the go all summer, mobile banking apps can provide a source of constant financial awareness they carry with them throughout the day. Teach them to take advantage of mobile banking and text alerts on their bank’s app to track their spending and always be aware of their balance and outstanding payments.
Using Allowance to Teach the Basics
Allowance presents an excellent opportunity to begin teaching younger kids (ages 6-10) the basics of financial literacy and can provide them with a personal perspective on value and the finite nature of money.
Value – Use an allowance (earned by doing chores around the house and yard) to get your kids engaged in spending and saving – and proud to have earned their money themselves.
Spending and Saving – Allowance provides a wonderful opportunity to teach practical examples of saving; needs vs. wants; and short vs. long term goals. Make certain that some of the things your kids want throughout the Summer, such as ice cream treats, vacation spending, or water park tickets, are their responsibility. Have them use their allowance and encourage them to plan ahead.
But don’t be afraid to let them fail. If your kids have a Summer savings goal and end up spending all their allowance on frivolous things, they will learn a valuable lesson with real-world consequences. Over time they will adapt more responsible money management habits.
Include the Kids in the Vacation Planning and Budgeting
Summer trips come with a lot of pre-planning. Including the kids in the process can provide some invaluable real-world examples that show why planning and budgeting are so important.
Set a Budget – Start by coming up with a solid figure reserved specifically for your trip.
Price it Out - Share choices and costs with the kids – lodging, gas/travel, excursions, meals, etc. Work with them to put together the options and find a balance between affordability and enjoyment as it fits into the overall budget you’ve allotted.
Let’s say the kids find that choosing the fancy, more expensive hotel with the “awesome” pool would mean they would have to sacrifice one day at the theme park. They’ll learn that choosing the more moderately priced hotel with the “okay” pool will allow them to spend one more day on vacation. This is a great exercise in reinforcing the lessons of needs vs. wants and practical choices.