Teach Dollars and Sense
Equip your teenager with financial skills and you'll be ahead of the curve. A 2008 survey among high school students revealed decade-low scores for financial literacy [source: PACFL].
Many teenagers have lofty financial expectations, such as thinking they'll earn six-figure incomes the moment they graduate. However, the survey showed that only 26 percent even understand how credit card fees work. Even fewer teens know whether using a high-fee check-cashing service is a good idea [source: PACFL].
This lack of financial know-how, when paired with unrealistic earning expectations, is a recipe for debt. But you can head off trouble with some smart tactics. For example, pay household bills with your teen -- he may be shocked to discover the impact of property taxes. You could also give him $50, a sizable grocery list and instructions not to overspend. He'll discover cost-saving store brands and other ways to best use the money.
If your teen has a part-time job, budgeting should be a natural progression. If you've decided your teen should forgo a job to concentrate on school, you may want to offer a base allowance with the option to earn additional income for extra projects [source: Kristof].
When a teen handles money, it teaches two valuable skills: budgeting for the future and identifying "needs" -- a concept that gets murky when it comes to concert tickets and designer jeans. Remember, it's OK if your teen's priorities are different than yours, but he should develop a spending plan. It will help him understand he can get expensive things -- if he's willing to save over time.
Is a cell phone a "want" or a "need"? Find out on the next page.