How to teach your teen or pre-teen to handle money responsibly.
There are many teenagers, and even pre-teens and children, who have credit card access these days. I was shocked one day, when a nine year old girl told me she had a credit card so that she could spend up to $100 a month on Webkins. A nine year old with a credit card? $100 dollars a month? My allowance was $5 a month right up until I got my first job at 16, and then, since I had my own money, I did not receive money from my parents.
There are likely as many philosophies about teaching children and teens how to handle money as there are parents! And yet, despite all the good intentions, we have western nations full of debt and bankruptcy. Until the school curriculum includes far more information about personal finances then it currently does, it is up to parents to educate their children about money, and how to handle it.
Many parents think giving teenagers a credit card, or an allowance, will teach them how to spend money responsibly. Unfortunately, handing someone free money does not teach him a single thing about how money works in the real world. An allowance that is tied to chores is the closest approximation for a teen of how money is earned (other than a job, of course.)
Consider this: teenagers are not eligible for their own credit cards (for good reason.) That means, a credit card for your teen is under your name and is actually your money. Even if you make them pay you back from their allowance or job, who pays if they spend more than they make? You do, eventually, or your credit rating tanks. And smart teenagers know that. They may not want to get in trouble, but if it's something they really want and can't afford, they'll go ahead and buy it anyway, because, after all, they aren't the ones legally responsible for the card. A pre-paid credit card is better, as long as your teen makes the pre-payments with money he has earned, and you are not just giving him a free allowance of a couple hundred dollars a month, but it would really just be better to let him have a debit card linked to his bank account.
By far the best way to teach your teen about money, however, is to get them involved in the family finances. If you don't know much about managing money yourself, it's time to learn. Many communities offer free or low-cost seminars to help you understand your finances better, and you can take your teen or pre-teen with you, or teach him what you have learned afterwards. Teens may not be willing to help you out with this, so try a win-win strategy: pay your teen to help you with your finances!
When your teen helps you complete your taxes, he will see how much money is eaten up by taxes, and will understand that what you make at work is not the same as what you have. This will help him understand that you do not have endless money to give him for electronics and concerts (win!) When he sees how much you pay in rent (or mortgage payments) he will begin to get an idea of how important it is to save and manage money for monthly bills (win!) Get your teen involved in your budget, teaching him the difference between expenses that are priorities, expenses that are urgent, and luxuries that can wait. Take out a calculator and get him to figure out how much interest on credit cards adds up. Once you have shown him the ropes, it can be one of his chores to keep track of monthly family expenses and savings on an Excel spreadsheet, and you can pay him for this as you would any chore, if that is how you make your teen earn his allowance (win for your teen's wallet!) All of this learning is also going to be reinforcing your teen's math skills in a major way (win again!)
If you find yourself embarrassed to share your family finances with your teen, ask yourself if perhaps it is time for you to get your finances into better shape. Discovering how to handle money together can be an excellent bonding experience. Of course, if your teen has his own job, he should be doing his own taxes, and learning from that.
In today's world, teaching your teen or pre-teen the harsh realities of money could be the best gift you ever give him, and there's no better way to learn than by doing. Giving your child a way to earn money by managing the family finances will motivate him to learn now, before he goes off on his own and ends up $10,000 in credit card debt before he knows what hit him.