Creating good spending habits is a very valuable skill for anyone. Did you have good habits before you left home? If not, what kind of difference would it have made in your life? Here are a few powerful concepts that can make a huge difference in the way your teens manage their money.
Cash is still king
Even though we are using online payment systems and credit cards more and more, cash remains the king. This can be explained by the fact that your brain has a harder time handing it over. Indeed, when you give cold hard cash in exchange for a purchase, it is easier for you to realize what you are actually spending, as it is anchored in reality. On the contrary, just swiping your card remains something abstract; a number in your head. As a consequence, people have been shown to regularly pay up to 20% more for an item when they use plastic as demonstrated in a study by MIT.
I believe it’s very important for all youth to experience successfully managing cash before they are provided plastic. It may seem old fashion in today’s world, but it can prevent a lot of serious problems in the future if they have some perspective and responsibility using cash in the present.
Cut the temptation
Help your children learn the old – but gold – idea of only going shopping when they need specific items. If they have free time, it will be much more beneficial for them to hang out with their friends outdoors, especially if they can do some type of sport or physical activity. The more they go shopping and see items they desire, the more they will want them, whether they need them or not.
Because of the way the human brain is wired, the excitement over desiring something is actually a more powerful feeling than the emotion of acquiring the object of desire. Sincethis is what helped us catch our food in ancient times, the motivation had to be powerful.
Help them set goals and save for the items they really want
Doing that will help prevent your teens from blowing money on items that are discarded a short time later. Self-control has been shown to be the major trait in children which predicts financial success in adults. It is more influential than IQ, school grades or socio-economic status. Acquiring this skill from a young age can thus be very beneficial for the future.
The “GISS” (Give*Invest*Save*Spend) method of managing money is a simple, powerful way for people of any age to manage their money and build their way to personal and financial success. Saving is a fabulous way to enhance your self-control, so if your teen doesn’t have a savings account now, encourage them to go and open one.
Create a spending plan
Words do matter, and a spending plan is way more fun to create and stick to than a budget. It provides your teen the opportunity to look at their income and expenses and begin to learn how to manage their cash flow, another essential financial skill they should learn before they leave home.
The spending plan should be incorporated into their GISS method of managing their money so they are able to save for important items and not spend all their income. A good budget app works great as a money management tool.
File and track it
One way to become more responsible with money is to understand where it’s going and if you’re happy with your decisions. Encourage your child to keep their receipts in a file so they can return an item if needed. The simple exercise of keeping their receipts and writing down what they spend will give them an opportunity to reflect on their decision, and how they feel about it. This is a major step in learning how to make good decisions in the future.
Decrease Shopping Peer Pressure
People have been shown to buy more expensive items if other shoppers are in close proximity. It is a major cause of overspending and something most people don’t even realize. Let your child know that they may be better off shopping alone or with you when they need to purchase items, it could save them a lot of money in the long run.
Discuss the cost of things
I often have people in the financial and teaching professions tell me that the teens they work with do not have any idea what the cost of things are, outside of their tech toys, and maybe clothes. This is one of the reasons young adults go into such deep debt when they move out on their own; they have never been exposed to the reality of what life costs, or managed their own financial decisions. It is critically important that your child begins to be involved in the discussion and purchasing of various items like food, clothing, personal toiletries, car-related expenses, insurance, sports activities and cell phones. The National Endowment for Financial Education released results that showed a shocking 59% of adult children aged 18-39 not attending school were being subsidized by their parents for living expenses like rent, mortgage, transportation, and food, as well as medical bills and spending money.
Ask “How many hours of work is this item worth?”
This is a great exercise if your teen has started working. When I was in University, I used to do this whenever I went shopping and it really made me think before purchasing anything. I knew my time was valuable and didn’t want to waste it on something I might have to work eight or ten hours to pay for. Have your child figure out the full cost of the item plus taxes and then how many hours they would have to work to pay for it with their after-tax income.
Giving time and money to charitable organizations changes the perspective of a person forever. When a teen takes the time to see how others live, they appreciate their own lives more and are less likely to waste money. They also become aware of how much impact they can have on their world; how they can truly make a difference. It’s hard to complain about not having a new iPod if they just spent three hours with someone who just lost the ability to walk. Helping others brings out the best in people and is one of the greatest joys in life.Teens can benefit greatly from this type of opportunity.
Read through the Contracts
Whether it is their first cell phone contract or a credit card contract, show your teens the importance of reading, and understanding, the fine print in these legal contracts. They should understand the interest rates and the implications of paying late or only paying the minimum amount. Also be sure they understand the payment terms. It’s not uncommon for teens to initially rack up $500+ bills when they first get phones, simply due to the fact that they didn’t understand what was covered in the contract.
Teens that focus their energy on achieving life goals (athletic, academic, charitable etc.) are shown to be much happier and more fulfilled than teens that spend large amounts of time focusing on material items they want to own. When your teens do want to purchase items, help ensure they think the decision through. The process of learning how to make good decisions comes with practice and thoughtful consideration of previous outcomes!