Teens and Money Matters

Anyone who has teenagers probably understands the financial struggle of raising teens. Suddenly, they are out and on their own and wanting to do all the things, all the time. The only problem is, those things cost money. The cost of gas, meals with friends, trips to the movies, new clothes and more can all add up quickly. The good news is, your teen is definitely not too young to begin to learn about money matters — and the earlier they learn, the better.

Scott Quandee, shareholder services manager at Capital Group, offers tips on how to teach teens the value of the dollar, as well as information on savings, investments and goal setting.

What are some ways parents can teach their teens the value of the dollar?

We made our kids get jobs at early ages. As they received paychecks, we would make them pay for things they wanted. For example, our kids always want new shoes. We pay for most of the cost of the shoes; however, as teens, they always want more expensive shoes than we are willing to buy. If they had the money and were willing to part with it, they were able to get more expensive shoes. When our son started driving, we made him pay for his own gas, and when he goes out to eat with his friends, he needs to pay for himself. This has instilled in him the value of saving money. He is very aware now of his balance and it motivates him to work.

Do you think it’s important for teens to start saving? How much is a good amount to save?

It is never too young to get kids to save. I think 10% of their income is a good starting point for saving.

Can teens start investing? Any recommendations for small investments?

Teens can start investing. Most teens don’t make enough to open investing accounts, but I recommend they invest into mutual funds. If your teen has W2 income, you can open a custodial IRA and they can start saving tax deferred. However, IRAs have rules as to when you can withdraw the money without penalty. You can also open a UTMA/UGMA account which allows a teen to own an account and have access to the money when they want. Most teens are usually going to have a basic savings account because they will be using their savings, and investing needs to be a long term focus.

What are some ways parents can encourage their teens to not spend money as soon as they get it?

This is the hardest thing to teach teenagers because I think adults struggle with this, as well. We have encouraged our kids to set goals. For example, we made our son pay for a portion of the car he drives today and we are doing the same thing with our daughter. If they want a car as soon as they get their driver’s license, then they need to save money! We let them know they had to pay $2,000 toward a car. This is a lot for a teen to save if they are spending it as soon as they get it, but having the goal in mind helped both of our children. Our daughter is only 14 and already has $1,500 saved!

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