WORTH READING

The Parent Trap:
Teaching Teens About Money

by Carrie Schwab Pomerantz

   How are today’s parents preparing today’s teens for the challenges of adulthood? We teach them to drive carefully, encourage them to study hard, and steer them away from drugs, alcohol and dangerous behavior. But do we teach them enough about responsibly handling money?

   Every year for the past few years Charles Schwab & Co. has sponsored a survey on the topic of family and money; it’s part of our ongoing mission to promote financial literacy — a perennial concern of mine, personally and professionally — and to understand why and how large numbers of people don’t learn or understand the basics of personal finance.

   This year’s survey, Parents & Money, looks explicitly at what parents are teaching their teenage children on the subject — or not teaching them, as it turns out. Parents clearly recognize the importance of the subject: They worry that their teenage kids don’t have a lot of knowledge of or experience with money management. But too few are actually doing anything about it. And, most troubling of all, many parents are not great role models for their children when it comes to personal finance.

   As a few representative statistics demonstrate, the survey shows that there’s a disconnect between what parents believe and what they do.

   • 93% of those surveyed worry that their kids could make serious financial mistakes — such as living beyond their means, failing to stick to a budget, or racking up too much credit card debt for example. But just 49% have taught their kids about budgeting and a mere 29% have taught their kids about credit card management.

   • 71% believe the best way for teens to learn about money is from guided, hands-on experience — although just 20% have seriously involved their teens with their family’s budgeting and spending decisions.

   • 75% of those surveyed believe they are good financial role models for their teens, but at the same time, 28% of those surveyed are not currently saving for their own retirement or their kid’s college education.

   • 97% feel it’s important to teach their kids to save and invest for retirement, but just 19% have taught them about investing; just 14% of them taught them what a 401(k) plan is.

   In short: Too many of today’s parents are not preaching the virtues of saving and investing — and they’re not practicing them either.

   This state of affairs concerns and frustrates me. As someone who grew up immersed in the world of personal finance, I find the subject quite interesting (one reason I went to work in my father’s firm). I know just how important it is. Everyone needs to know how to manage money in order to be successful in dealing with the enormous financial challenges of the modern world. People need to know how to live within their means. They need to understand the pros and cons of credit and debt. They should understand the basics of investing. And they must plan for retirement, the big challenge for virtually every American.

   The teenage years offer an ideal time for a financial education (their minds are supple and the stakes are still low); moreover, today’s teens want to learn about money and finance. In a survey of teens Schwab conducted in 2007, 60% indicated that learning about money management, including budgeting, saving, and investing, was a “top priority.”

   Ultimately, the Parents & Money survey demonstrates how, collectively, we are really shortchanging our kids when it comes to one of most important lessons for adulthood: how to manage your financial resources most effectively. I suspect this is even true for parents who are good with money!

   So what should you do? How should you go about teaching your kids about personal finance? Here are seven ideas:

   Talk about it! In many families, the subject of money is almost taboo, but discussing household finances as a normal part of everyday life is a great way to get your children clued into topics like budgeting, saving, and investing.

   Turn rites-of-passage into lessons for life. Teens get jobs. They decide to save for something big. They get their first credit card. They get a driver’s license. These milestones represent excellent opportunities to talk about financial practicalities — taxes and savings, credit card interest and fees, insurance — and pass along your own financial values and wisdom.

   Give your teen an allowance — and some real financial responsibility. An allowance should be more than a way to provide your kids with pocket money; it should be an opportunity for them to practice budgeting, to cultivate the habit of saving, and to make mistakes. Make it clear what the allowance is supposed to cover; try not to cave in when they run out of money before the next cycle (having no money for few days at the end of a month is a potent reminder of the importance of prudent budgeting and spending).

   Encourage them to get a job.Just 33% of parents surveyed said their teens had a paying job, but there is frankly no better way to learn about the world of work than by taking a part-time and/or summer job. Earning their own money gives teens a tremendous sense of accomplishment (and turns quite a few kids into real savers: earnings are harder to spend than allowances or gifts).

   Teach them how to use financial tools like checkbooks and credit cards.Another surprising finding was that just 30% of the survey’s respondents said their teens had a financial account. Open a savings account or a checking account; consider a small custodial account for experience with investing. Give them a low-balance credit card and teach them to use it responsibly. Get them in the habit of keeping track of inflows and outflows.

   Hook them on the saving habit. Saving money can be habit-forming, so cultivate the idea with your teens to make it as automatic as brushing their teeth. You might want to give them an incentive by matching a certain percentage of any voluntary savings. Help them formulate a mix of short-term and long-term goals so the savings process has an objective.

   Show them the money. You may not want to share every detail of your financial life with your kids, but consider showing them a statement from a 401(k) plan or IRA account. It makes investing more concrete to see, and it’s an ideal opportunity to teach them about the retirement challenge, investing basics, and how to make money grow.

   None of these ideas are hard to implement; all that most of them require is some talk and encouragement. And keep in mind that teens really want to learn about money. They recognize its importance; they know that life is expensive; they’re looking to you for guidance and insight. April is National Financial Literacy Month — the ideal time to get started.

   For more info about the Parents & Money survey:  www.aboutschwab.com/community. For additional tips, tools and resources for teaching and learning about money management, visit www.schwabmoneywise.com.

     Carrie Schwab Pomerantz is the Chief Strategist of Consumer Education at Charles Schwab & Co., Inc., member SIPC, and President of Charles Schwab Foundation.  She is the coauthor (with her father, Charles R. Schwab) of It Pays to Talk: How to Have the Essential Conversations with Your Family about Money and Investing (Three Rivers Press: 2003), and she writes a regular advice column on www.schwab.com called Ask Carrie.

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