How teens manage their money — and how parents can guide them
A new Wells Fargo survey about teens and money shows that although teens have more life experience than younger children, they still need adult guidance as they learn to manage money.
Your teenager learns that you’ve been in their bedroom. What’s the first thing the teen worries about? If you guessed their phone, you’d be in good company.“Go anywhere near my daughter’s phone, and she will freak out. It’s like you’re tearing her soul away from her,” said Urmila Raghavan, product management manager for Wells Fargo’s Clear Access Banking. “The level of protection over what you might see on their phone, it’s ridiculous.”
Good thing for teens, most parents — 61% to be precise — are more interested in seeing what their kids are spending their money on than in reading their text messages.
- Want to make purchases using their own money, without restrictions
- Have experienced buyer’s remorse for an expensive purchase
- Have paid for something online or via an app that they thought was free
- Have purchased things behind their parents’ back
Teen years are the ‘training-wheel period’ for finances
Although teens have more life experience than younger children, they still require adult guidance as they learn to manage their money.
“Teens think they are more mature and financially capable than they are,” because they’ve yet to experience a variety of financial situations that enable them to learn from their mistakes, said Erin Constantine, Wells Fargo’s head of Consumer Deposit Products.
“I think you’ve got to treat the teen years like it’s the training-wheels period for how to handle money,” added Raghavan. “You’ve got to give them enough leeway to make some mistakes, because the mistakes are not as dire when you’re dealing with these small dollar amounts.”
Cornelius Moore, a Wells Fargo financial analytics consultant and father of three, knows firsthand the importance of imparting financial knowledge on kids. Money management is “a life skill, like learning the alphabet, learning how to write, learning how to read,” he said.
Moore started money lessons early, when his kids were six. Rather than an allowance, he pays them “commission” for work done around the house.
Each child earns a base commission of $5 per week for making their bed, taking out their trash, and cleaning their bathroom. He said he pays bonus commissions for “things like cutting the grass or cleaning the kitchen when nobody asked. The extra stuff going above and beyond are to make my life and my wife’s life a little bit easier.”
Talk to kids about money in everyday situations
Teaching kids about money doesn’t need to be complex or overwhelming. According to Raghavan, it can — and perhaps should — be part of everyday activities.
“It is ingrained in our everyday conversations and has been for a while,” Raghavan said. “It’s about making it part of the daily dialogue as opposed to: ‘Let’s sit down and have this big money conversation, children.’”
Constantine added that parents should have early discussions about parameters around spending — whether teens are required to save or give to charity or have limits on what they can buy. “Have those conversations up front and not the argument later.”
Abandoning judgment will help teens open up
For parents to successfully teach kids about money, Constantine said it’s vital that teens feel safe coming to their parents when things go wrong.
“You can’t get mad at them, and you can’t judge them,” Constantine said. “If there’s a financial mistake and they’re ridiculed about it or there’s some sort of punishment, well, they’re not going to tell you next time.”
On the contrary, Raghavan reemphasized the teen years as the ideal time for financial mistakes. “It’s better that they have the mistakes now. It gives you an opportunity to talk to your children in a judgment-free way that helps them learn for when they’re managing larger sums of money in the future.”
Financial resources for teens
Quick tips for parents
Financial Analytics Consultant Cornelius Moore shares tips he uses with his own children:
- Pay kids an allowance, but call it “commission.” Give more money for above-and-beyond tasks — showing harder work is rewarded.
- Ensure kids know to add taxes, fees, and gratuities, so they budget for total cost.
- Teach delayed gratification and the importance of saving for something later.
- Give older teens a debit card (not a credit card) so they can keep track of spending.
- Help kids know how to spot scammers and financial schemes.
- Explain that financial markets don’t go up all the time; they need to be prepared for both ups and downs.