Bay Area Parent


Hey Big Spender

How to Teach Teens About Financial Responsibility

By Corrie Pelc, Bay Area Parent

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Teens love to spend money. A recent report by Teenage Research Unlimited notes that teens spent $159 billion in 2005; nearly half of those interviewed predict that they will spend more in 2006.

However, teens don’t love to save money. A study commissioned by the National Consumers League found that 55% of teens surveyed said they work mainly for spending money, while only 35% mainly save. While nine out of ten teens say they save money, 36% admit that they are saving for specific items they want to purchase, 22% are saving for college and 27% are saving for no particular reason.

Teens may still be financially dependent on their parents, but it’s important for them to learn about financial responsibility and how to manage their money intelligently. “When we think about how our world is changing and how teens have more access to money than probably you or I did, it’s important for them to understand how to properly manage it,” says Sanyika Calloway Boyce, author of Teen Money Tips: Somple Steps for Banking, Saving, and Making Money. “It’s critical to their success at being an adult,” adds Kish Dill, board member and volunteer for Junior Achievement of Silicon Valley and Monterey Bay, which teaches financial education classes in public schools throughout Silicon Valley. “[Also] important is their success in getting through those difficult years after high school, through college, and into their early 20s.”

In most cases, it’s going to be up to parents to do the teaching. Most schools do not offer personal finance classes. According to Bryan Medlin, founder of Alameda-based Money 101, which offers financial life skills workshops for young adults, only seven states nationwide require students to receive instruction in personal finance before graduating high school. California is not one of them.

So, how can parents ensure that they are teaching their teens what they need to know about money management? To begin, help a teens set up a savings and/or checking accounts. Dill says these accounts are a step to financial independence and responsibility. “Often, when I go into a classroom, the kids’ only understanding of a financial system is: I get an allowance every week, and I can spend it on what I want,” he shares. “They never get the chance to practice and understand the whole concept. It also adds some pride to their life because, hey, this is my own; I am learning how to be independent.”

With a savings account, parents can begin to teach the concept of saving for the future, perhaps for “big-ticket” items such as junior prom, their first car or a school trip. Parents can even go further into the future by teaching their teen about the concept behind a 401K plan. For example, parents can say that for every $10 a teen saves from their allowance, they will match that amount. “It helps them see, ‘Wait a second, if I’m willing to put the money away and save it instead of spending it immediately, I’m actually going to get even more back,’ so the reward is huge,” Calloway Boyce explains.

Parents can also help their teen understand the difference between “needs” and “wants” and how to assess them. That is one of the topics covered in the “Money Matters: Make it Count” program offered by the Boys & Girls Clubs of Silicon Valley Levin Clubhouse in San Jose. “We talk about how parents usually provide all the things [teens] need and how they shouldn’t really depend on parents to give them things they want. Young adults should learn as teenagers how to start saving for the things they want,” says Erica Muniz, health and life skills director for the Boys & Girls Club of Silicon Valley. After parents set up a savings or checking account, they shouldn’t just walk away, Dill says. “This should be an ongoing discussion of, ‘Hey, my statement came in today. Let’s look at this and learn how to reconcile the balance with my checkbook,” he explains. “That is a perfect opportunity to promote dialogue without it being a lecture. It can be much more of a learning experience that way, instead of, ‘Here’s your allowance, Don’t spend it all in one place.” Parents should also be aware that many banks and credit unions offer special accounts with teens in mind. There’s Bank of America’s CampusEdge checking account for young adults 18 and up. According to Diane Wagner, a spokesperson for Bank of America, teens can receive a Stuff Happens card. “It’s good for a one-time service fee refund. So, if you did an overdraft with insufficient funds or you needed cash and went to a non-Bank of America ATM and had a fee assessed, you can use your Stuff Happens card so it will eliminate the service fee.”

Should parents let their teens have access to their money through a debit-card? Dill says it depends on the individual parent and teen. “A debit card is a fairly common way of getting cash and getting access to their savings account. So long as it’s understood that this is the same thing as having all your money tucked away in a mattress in your bedroom, I think it’s fine.” He concludes. However, parents need to emphasize the importance of keeping track of expenses. Says Calloway Boyce, “I had a kid say to me once, ‘Well, I don’t have to balance a checkbook because I never wrote a check.’ So the concept of balancing a checkbook needs to still be communicated although we are going to a paperless society.”

What about credit cards? “Teenagers and college students are inundated with card offers in the mail and this leads to trouble,” Medlin says. “Credit cards are power tools and, like a power tool, you can do something good with it or you can really hurt yourself. It really depends on how you use it. And as with a power tool, you need to have a certain level of awareness of the features and how to use it effectively. Credit cards are really no different.”

Calloway Boyce recommends that parents have a conversation with their teens about how credit is not evil, but rather, necessary. “Often, I hear parents say, “Oh, stay away from credit, it’s bad. It’s evil, you don’t need a credit card,” she explains. If you can create for your children a healthy respect for and a constructive relationship with credit while they’re still under your supervision, that’s going to make for a far more responsible and better credit consumer.”

Although special bank accounts for teens and financial workshops can help parents in their quest to teach financial responsibility, some experts also advise parents to use their daily financial transactions as teaching tools. “Include your kids when you’re balancing your checkbook,” Dill says. “I wouldn’t keep it a secret how much money you have in the bank account. Make it an activity that you go over with them; ask them what decisions you should make.” Dill also suggests including teens in financial decisions. “When you’re buying a car, sit down and ask, ‘How much money do we have in the bank? What type of car should we get? And, of course, the kid’s going to say, ‘I want the Escalade’ and you can say, ‘We don’t have that much money, we have this much money, what should we do?’ Any type of transaction when you’re doing normal day-to-day activities is an opportunity to engage your kid in learning.”

Other experts explain that a teen learns from observing his or her parents. “The savings and spending habits of the adults in the home certainly lay the groundwork for the culture of what the young adults will be doing in the future,” Wagner says. Learning to save and budget now will help teens when they go off to college, so they don’t end up misspending money set aside for food and school expenses. Says Muniz: “Even though parents help with college education or any kind of higher education, we want the kids to be able to learn why it’s important to go to college and how they should budget their money if they’re receiving financial aid or if their parents are paying for school.”

Plus, learning how to budget and manage money now will pay off in adulthood when dealing with shrinking pensions, rising healthcare and housing costs, and uncertainties surrounding Medicare and Social Security, Medlin says. “It’s not about how much money teens save—that’s irrelevant,” he explains. “What matters is putting in place the discipline and the awareness required to make progress. Every adult, myself included, can look back on their own lives and identify financial decisions that they made when they were younger that, gosh, if they had been a little bit smarter, how different their lives would be today.”


Corrie Pelc is special sections editor for Bar Area Parent


  1. Bay Area Parent – Money 101 – Personal Finance Workshops for Teens & Twentysomethings was added to my bookmarks. I can’t wait to read more about this topic.

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