How should you explain economic issues with your teen?

As your children get closer to adulthood, it's vitally important that they understand economic issues and begin to develop money management skills. One of the best ways for them to learn the basics of budgeting, saving and spending is to have an allowance. As your teens grow older, you can increase their allowance, together with increasing their responsibility for getting their own stuff. If your 16-year-old is given money to get her own clothing, she'll have to choose whether to save up for those designer jeans, cut back on other purchases, or get something cheaper. Older teens can take on planning and budgeting particular activities for the whole family, such as a vacation, party or even food shopping for a week. They're not only learning to think carefully about money matters, but they're also gaining a measure of the independence teens want so much.

Your teens should see you as a role model of financial sense. Talk to your kids about the bills you pay and various savings plans that you have. Let them know about your budgeting choices, especially ones that affect them: Have you cut back on family travel in order to put more into their college fund? Do you spend less on food in order to give more charity?

Make sure your teen knows about banking: Start an account for him, and encourage him to save. Many banks have special accounts for teens and some also have teen-friendly sites that explain banking procedures and terminology. Consider a debit card or even a controlled credit card, and explain how it works.

Teenagers may begin to notice headlines about economic crises, foreclosures and bankruptcy. Even if your family is not affected, it's worth talking to your teens about the situation; explain how the national economy works and how it affects jobs and prices. If your family needs to cut back in some areas, let your teens know why and be clear about how things may change for them. Don't scare them, but do let them in on your concerns. Let them help you think about cost-cutting measures.