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Teach Your Teens about Money

If our current economy proves anything, it’s that the sooner you start teaching your teens about the value of a dollar, the better. “The rate of personal saving in the United States has been low for years—and it has declined even further as the slow economic recovery continues to put pressure on family budgets,” said Annette D. Szygiel, executive vice president and chief experience officer at Univest Corporation. “The U.S. Department of Commerce recently reported that Americans’ personal saving rate was under four percent in May. Now more than ever, parents must do everything possible to encourage their children to develop strong money-saving habits.”

In fact, research shows that 86 percent of teens learn about money management from their parents. Make sure you put your teen on the road to financial success with these tips.

Show them the ropes. The cost of running your household should not be a secret, says Tiffany “The Budgetnista” Aliche, who bought her first home at 25. “One of the reasons many teens don’t have respect for money, is because they don’t see how it directly affects their lives outside of purchasing things that they want. Change that perception by showing your teen the bills and highlighting how much they cost each month.”

Take them children shopping. According to Szygiel, the grocery store is a great place to show kids how to compare prices (the price per ounce, for example). “Show them that just because something is on sale doesn’t mean it’s the best value.”

Don’t be an ATM. Teaching teens about money starts by giving them the opportunity to manage it, says Jennifer Calonia, a personal finance expert and editor for Go Banking Rates. “Providing a small weekly allowance is a good way to start ($20 per week, for example). Then, lay down strict rules that they need to keep their daily wants/needs within their allowance budget because you’re not going to supply them with more cash.”

Use the “three envelope” method. Have your teen separate his money into three categories: spend, save and give, says Kat Hnatyshyn, a CommunityAmerica Savin Maven and branch manager. “This will teach them the importance of not just spending, but saving and giving back. In addition, explain the concept of interest and give them an example of how their money can add up over time if they choose to save some of it. If they can learn from an earlier age to save, spend and give smartly, they are more likely to carry these lessons with them throughout life.”

Save cash gifts. “While it’s important to give teens a chance at handling cash and balancing expenses, it’s equally important to teach them how to save money,” says Calonia. “Encourage them to deposit 60 percent of all cash gifts from birthdays, Christmas, graduations, etc. into a high-yield savings account. Then establish a timeframe when your teen is allowed to withdraw the funds (e.g. at the end of each year or upon reaching 18 years of age).”

Allow your teen to make money mistakes. It’s time to withdraw those funds and your teen decides to blow it all on a pair of trendy sneakers. While it might not be the wisest decision, let her do what she wants with that money, says Szygiel. “Whether the decisions are good or bad, they will learn from their spending choices.”

Make it visual. Take a cue from those charts that schools use to showcase their fundraising efforts and have your teen create one for their savings, says Aliche. “Help them choose a specific financial goal and its corresponding reward (i.e. $6,000 for a car). Then create a chart where they track their progress. Put the chart somewhere they will see it each day. Teens are very visual and are stimulated when they can make clear connections between their behavior and rewards. You can also up ante by promising to match their savings up to a certain amount.”

Distinguish between “wants” and “needs.” The next time you’re out shopping and they want to spend away, try this: Tell them that instead of buying the item then and there, you’re both going to leave the store and they can think about the purchase for a day, suggests Allyson Austin, finance writer at “If after a day, they still want it, it’s theirs. More often than not, they’ll change their minds. Like with so many adults, being in a store can make their eyes larger than their pockets, blurring the line between something they have their heart set on and an impulse buy.”