Teen Spending: Why are Teens so Carefree with Money?

Ever wonder why teens are so carefree with money? It’s because teens (and younger kids) think about money in a different context than adults.

In our society, kids are not required to earn money; someone gives it to them. They don’t have to pay bills; parents take care of them. To them, money is a treat, sometimes received regularly, sometimes not.

Most adults earn their money. Consequently, an adult looks at money knowing that it pays for choices made in the past, as in, “Can I make the full mortgage payment this month and buy groceries?”

On the other hand, kids get money from parents and relatives so, to a kid, their money is for the future as in, “What will I buy at the mall today?

There’s nothing horribly wrong with this picture. As parents, we enjoy seeing our children have fun and nothing says “fun” like having money to spend. The reality is that kids and adults view money differently because they get it from different sources and have different motivations for how they spend it.

Dangerous spending habits of teens

However, when we casually dole out money to our kids, while at the same time taking care of their financial necessities, we enable them to develop freewheeling attitudes about money.

As a result, we are not preparing them for the reality they will face as adults, where they have to work and make decisions about paying their bills before they can go the mall to spend for fun.

Let’s consider getting a driver’s license. We can agree that getting behind the steering wheel is the fun activity that our kids relate with driving. However, as parents we know our kids need to learn the rules and practice the skills of driving. If not, we fear they could have an accident.

We also unconsciously know that through practice making good driving decisions our kids will begin to understand and appreciate the responsibility of having a driver’s license.

Learning to manage money also requires practice to develop skills. Without practice using money for more than just fun spending our children will not change their attitudes about money before they become adults.

Lynne Finch helps parents teach their kids about money from piggy banks to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school through high school

Debt Talk with Kids: 4 Basic Truths About Debt, Credit Cards and Borrowing

Are you ready for the debt talk with kids?  In preparing your kids for the adult world of financial responsibility, help them understand debt, credit cards and borrowing before they are legally responsible. Here are some talking points to use with kids of all ages.

One: Debt is money you owe to someone else. When you ask a person or bank to lend you money you now are in debt. The principle is the amount you borrow. Getting the money is the easy part; now comes the payback.

Two: Debt costs money. Whoever lent you the money expects to make some money by charging you interest. When you make loan payments you pay the principle plus some interest. Think of the interest as the monthly fee for the privilege of getting the money in the first place.

Three: Debt can be structured. When you take out a loan from a bank there is a discussion of how much and how often you make payments. Such payments get treated as a regular monthly bill, often through an automatic withdrawal from your checking account. These are usually for big-ticket items like cars and homes with the repayment period being years or decades.

Four: Debt can be unstructured and sneak up on you. When you use a credit card you are borrowing money from the credit card company. This is a one-month loan that you pay back without any interest if you pay the full amount on time. If you don’t pay in full and on time, you now have to make payments plus interest to the credit card company.

Remind your teens that it takes personal discipline to control credit card spending and to  have the funds to make the full payment. There is no payback plan like a bank does with a formal loan agreement.

As a result, the credit card company sets a minimum payment you need to make to avoid extra fees and interest. Most card statements also show how long it will take to pay off the balance if you make only the minimum payment.

Debt talk with kids: show them the numbers

With money, kids see the result of spending but they don’t see debt because debt is invisible. Kids don’t realize that people borrow money to acquire some of their tangible possessions. Borrowing can be as complex as a 25-year home mortgage or as simple as using a credit card and not paying the full balance when the bill is due.

We often talk about, “living within one’s means”, “make every dollar count,” and “spend less than you take in.” These maxims are the essence of money management, defined as having the ability to use one’s financial resources wisely.

Debt is invisible and has always been a number, the grand IOU of finances. In conclusion, when we give kids cash allowances they see the money.  However, the only way to see debt is as a number. If you give your kids a no-cash allowance they start seeing that money coming in and money going out are numbers.

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Lynne Finch helps parents teach their kids about money from piggy banks to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school through high school.

 

Helping parents teach their kids how to manage money as a number.