Personal finance is one thing that I wish that I had learned more about when I was younger. When I graduated high school, I knew the most basic of the basics: what a checking account and savings account were, people made a lot of money in the stock market, that you should save money and when you got older and wanted to buy a house a credit score would be important. I had heard terms like interest, stocks, bonds and IRA but I had no clue what they really, truly meant.
When I first got to college, I learned that there was a pizza place that accepted checks and if on Wednesday I didn’t have the money in my account, I could still get a pizza and just deposit the money by Friday and be ok. Then, I learned that if I didn’t have quite enough to pay for my electric bill, I could still write a check and it would go through and I could just pay the bank back later. I also learned that credit cards were freely given out to new college students.
It didn’t take me long to realize that bank fees added up. It did take me a while to learn that 27-28% interest rates on credit cards were insane. I thought the idea of taking out so many student loans was smart – I could focus more on school, it had a long time to be paid back, I heard the interest rates were supposed to be low, and everyone just kept telling me that you can deffer the payments until much later. To say that I had no clue about personal finance is a totally accurate statement. I swore that I would teach my kids better. Our kids are now tweens and teens. I’ve tried to instill some basics as younger kids, but now we are working on personal finance for teens.
Personal Finance For Teens: How To Teach Budgeting
When my son was young, I never wanted to share financial information. I didn’t want him to see large utility bills and worry. The older he got, the more information I let him have, but now we have a different approach. I want him to see our bills. He knows electricity costs money of course, but doesn’t have a clue at how much. As teenagers, now is the perfect time to teach how to budget.
Surprise: We make our son’s pay rent, electricity and for food.
Now, before you send me hate mail, let me explain. Originally, we were giving $5 a week for allowance, so you can imagine their surprise when they learned they were going from $5 to almost $25! But we wanted something a little more real. So we sat the older two boys down and talked to them about how to set up a budget. We brought all of our bills to the table and I created some budgeting tools. We averaged out our house payment, electricity, food, and such and added up our totals to find our average monthly cost. This did NOT include any fun money or savings, just our monthly bills. Then, we divided them by the number of people in our house to find out how much it cost each person to live in our home for an average month.
The kids were shocked to learn that for six people in our house, it cost over $600 a month per person! While we aren’t paying quite that much in allowance, we do want our kids to learn what it is like to set money aside from each ‘paycheck’.
Handing the kids over $25, they looked like they had struck gold. And the idea of every week? The reality of having to then take their new pile of cash and having to pay their portion of the bills was a little disappointing. But it’s the truth! I haven’t met anyone yet, who likes to get their paycheck and have it dwindle away to necessities!
Our breakdown looked like this:
Weekly allowance: $25
- Savings (20%) – $5
- Giving (10%) – $2.50
- Bills (50%) – $12.50 (We broke this down and called it $4 for rent, $3 for electricity, $3 for food, $1 for water, $1 for gas, $1 for cell phone and 50¢ for internet)
- Spending (20%) – $5
We gave each bill an envelope and both boys (as well as Dustin and I!) put the weekly money into the envelope and locked it in our safe. I want the boys to get into the habit of paying their bills with each paycheck instead of trying to pay them all at once.
Then, we took the remaining money to our local bank. The boys added their savings into a dedicated savings account and the spending money goes into a checking account, which means that they have access to the money and can use a debit card. (Perfect for when they want to buy games and things online!) We bank at Key Bank and they have a free checking account that was only $10 to open and better yet, you can’t overdraft the account. Ask your local bank if you can turn off overdrafting privileges.
In the end, for allowance they are getting more money. Their ”spending money” may end up being the same, but we are giving them the extra money of savings and giving. They do have extra chores to make up the difference (and they weren’t too happy about having to work more while still having the same amount to spend), but the hope is that they learn early how to make good financial habits.
But what about working?
Good question! Both boys know that a part time job is not optional when they are old enough for a work permit. Once they get their first job, they are required to pay their portion of their cell phone bill. We are also keeping the percentage amounts the same for saving and sharing. We hope that through the years, paying themselves becomes second nature. And hopefully, when they leave high school, they have a good jump start on their savings.
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