My first real job was cooking french fries and waiting on customers at McDonald's in my hometown of Carmichael, California. At sixteen years old, I was making an awesome $2.25 an hour and feeling rich every two weeks when that pay envelope hit my hot little hand.
Having been raised in a family where money was usually quite tight, I had learned the value of being frugal by experience. But I have to admit, I didn't always make good decisions about how to use that important resource in my life.
As I have watched my teenagers at their first part time jobs as high school students, I have relived some of those painful memories. As I see them "squander" their play money on everything from junk food to $250 prom dates, I remember the feelings all too well. But, fortunately, my wife and I have tried to instill some good habits of savings and budgeting in our children from their very first allowances. And now all three of our teenagers have healthy balances in their college funds and have learned the value of money.
The following are good guidelines for helping your kids manage their money effectively.
1. Start Saving Early. One of the tools we have used is starting a savings account for the kids' college years when they were about 9 or 10. Even at $10 every two weeks, the savings added up to a noticeable balance by the time they were older teens.
2. Set Spending and Savings Patterns Early. Our rule at home is that 10% of each child's earnings is used for charitable contributions–a way to give back to the community or church. An additional 40% goes into a savings account that Mom or Dad have to sign for to withdraw funds. This we call the "college fund" and is reserved for getting the child into college or some appropriate post secondary activity. The remaining 50% can be used at the child's discretion, but we also set up an additional savings account for them to use for this play money. By setting some patterns while they are under your roof, kids can learn good spending and budgeting habits.
3. Consider a Matching Savings Fund. Some parents I have talked with encourage savings by matching dollar for dollar what their children put into a college fund. This pattern allows them to see first hand their parents' attitudes about money management.
4. Family Financial Councils. About once a year, we take one of our weekly family council meetings to discuss family finances. We take Mom and Dad's gross monthly income and convert it to Monopoly money and then go through the family budget with the children. This helps them see how Mom and Dad budget and how much things cost in the real world. Utility and transportation costs are usually the most shocking for them, and it helps them see the trade-offs that are inherent in any budgeting process.
5. Checking Accounts. Helping an older teen establish a checking account can be the next step in teaching financial responsibility. Most banks and credit unions offer special plans for teens. Also, sit down with your teen at the computer and visit the Checkbook Basics site at aboutchecking.com. This site offers online lessons in writing and recording checks, reviewing statements and balancing your account.