Many of our habits related to money management can be traced directly back to what we learned – or didn’t learn – from our parents. While math and science are subjects emphasized in the classroom, it’s surprising to learn that many teens haven’t been formally taught personal finance curriculum in school. So, what’s the quickest and easiest way to get your teen to start saving?
Often parents provide their teens with an allowance. Providing an allowance can be a good practice for helping your teen to develop healthy financial practices like saving, investing and donating. Experts say that allowances are best handled when tied to housework or chores that teens are tasked with completing on a regular basis. Tying an allowance to the completion of chores helps teens understand how money is earned.
Once your child reaches his teen years, then he may take on a summer or afterschool job and start earning his own money. It’s more important than ever to help him establish healthy financial practices. Parents who are members of the Trinidad and Tobago Fire Service Credit Union can open accounts for their children and help them to learn early on about banking and saving. In addition to opening an account, here’s the quickest and easiest way to get your teen to start saving:
Establish Goals for Saving
What’s the point in saving just to save? That’s what your teen may be thinking if there’s no short or long-term goals connected to her saving. Not only should your teen know why she is saving, she should buy into the reason. Talk with your teen about the things she would like to accomplish in the near and distant future. Help her to work through the financial expense related to achieving those goals.
For example, your teen may want a new video game or CD? If it’s not his birthday or some other celebratory holiday, then you may want to use this item as a short-term savings goal. You can earmark a specific amount that your teen will need to save in order to be able to make the purchase. Help him create a budget to see where his money comes from and how long it will take to reach his savings goal.
Having something exciting to save for in the short-term will certainly motivate your teen, but don’t just stop with a new gadget or toy. Encourage your teen to put money away toward a longer-term goal, like a concert for her favorite musician, gap year travel or even buying a car. Even if you don’t make her foot the entire bill, you can task her with coming up with half of the cost and then match the remaining amount.
Again, putting together a budget is important to help your teen visualize how long it will take to save money to reach both goals.
Spend, Save, Share and Invest
Once you’ve established the purpose for saving, it’s time to get practical about what your teen will do with his money. If you tell your teen that he needs to save all of the money he makes, then it’s likely to cause a revolt. The temptation of buying treats or spending money on fun things every now and again is going to be too much to overlook.
Instead, get realistic with your teen. Teach her that it’s okay to spend some of her money, but it should be balanced with saving, sharing and investing. This is a great financial literacy concept that helps teens take a holistic view of managing money. Work with your teen to determine the best percentage breakdown, some financial advisors suggest the following guide — 40% spending; 40% saving; 10% sharing; 10% investing.
You’ll need to apply the agreed upon percentages to the budget you put together. Your teen may be a little disappointed at first about adding to the wait time for reaching his goals. However, you can adjust the percentages to something that feels more comfortable.
Starting this tactic early will result in your teen developing a healthy mindset for handling future income within these four categories. To get teens excited about sharing, or donating money, it’s important to connect the giving to the end result of helping people in need, the environment, the community, a church or some other well-deserving cause. If you add in a volunteer component, then your teen gets to see the impact of her donation firsthand. This can be a powerful motivator.
After the allocations are made and a budget is set, be sure to bring your teen into the credit union to setup a savings account. Schedule trips to make deposits according to their savings schedule. Receiving a monthly statement and balance reports will also be a strong motivator for reaching those savings goals.
Teaching children to save money is critical to their future financial success. Once your child becomes a teenager, then you only have so many more years to influence saving habits in such an extraordinary way. Having short and long-term goals worth saving for will be a strong motivator to get your teen started – quickly and easily. Also, making saving more realistic — by allowing teens to decide how much of their earnings they will allocate to spending, saving, sharing and investing — will help them to feel like they have some freedom in making choices about their money.
If you have questions about getting your teen started on saving or establishing a savings account for your teen, please feel free to contact us for more information.