Spoiling your best friend, partner, and family this holiday season may feel good, but everyone has to learn financial responsibility at some point. When a teen gets their first job, it’s an eye-opener for them to finally have money in their bank account that did not come from their weekly allowance. This time of year, it is easy to keep swiping your credit card to get the best possible gifts for the lucky people in your life. However, you may be alarmed after the holidays when you look at your bank statement. Those gifts add up!

Make this year, the year you set the best possible example. Teach your teen good financial habits early on in life, so they can be smart about the money they are spending going forward. From credit cards to loans, savings to mortgages, taxes, and so on, there are many things for them to wrap their heads around. Plus, I’m sure you’ve noticed that young adults tend to zone out when they hear the word “finances”. Luckily, as a professional financial advisor, I can help answer any of their or your questions to help you create a game plan to teach your teen good financial habits. It’s a skill once learned that will pay off on a regular basis throughout their lifetime.

So, how do you introduce the topic of money to your teenager?

Teenagers think they know everything. They understand the concept of “I need to save money” for a certain item. Many of them do not know the steps leading up to looking at that savings account with a healthy balance and being able to say they have achieved their goal. Sit them down to show them how you save money for your mortgage, food, gas, extracurricular activities, how you saved for your college fund, your RRSPs, and that TFSA. 

Have them write down all their expenses. Maybe they go to the movies every Friday night, or they pay for their sports lessons. Have them include everything so they can see the number they spend weekly and monthly as a whole. If you have given them the money to do these things in the past, just have them write it down to see the whole picture of what the last month looked like in terms of the money they have spent. This number may be pretty big and it might be discouraging for them if they now have to save to spend that money instead of it being given to them. This is why creating a game plan going forward is smart. Especially, if you can give them goals and incentives to reach in order to get another chunk of their allowance for example. If they like to read, offer them a certain dollar amount for every book they read and ask them to tell you about it to make sure they actually read it. Or, perhaps shovelling the driveway or unloading the dishwasher earns them a few more dollars.

It’s also important to talk about ways to save money along the way. Maybe show them the savings of buying a small bag of popcorn instead of the extra large bag that they normally get. Show them how much these little budget changes can help them save money in the future and how those dollars can really add up over time.

If they know what future career path they want to pursue after high school, find out the average salary of that role and the average cost of the city they want to live in. Again, these big numbers may be discouraging for them, but explain that it is possible if they budget their money right throughout the month to be able to afford the things they want without going into debt.

Allowance – To Give or Not to Give

Giving your child an allowance is a fantastic way to teach them the value of their efforts and hard work if it in turn allows them to properly save up for the things they want to buy. A typical amount that parents tend to follow is $1 per year of age per week. An allowance will teach your children how to budget so they can learn from their mistakes before they start earning more money from their first job. I like to think of an allowance as a bike with training wheels for their financial responsibilities.

Budgeting & Debt

Now that you’ve already gone through the topic of budgeting with your teen, have them establish a budget of their own to outline a plan. This plan helps with goal-setting and decision-making in the future.

A good way to teach them how to budget is to put their money into different jars with the 50-30-20 rule. This means that 50% of their money goes toward their needs, 30% toward wants, and 20% to save for their future. The 20% part tends to be the most challenging, but this is when their goals come in handy. A goal can be flying to Europe, getting a car, or donating to charity. Who knows what your teen will pick, but it’s a great habit for them to form – everyone needs a goal to work towards in life.

Taking the time to explain the importance of budgeting could be the thing that actually prevents them from going into debt.

Bank Accounts

Moving their funds from a piggy bank to a bank account is a huge step. Explain to them how financial institutions work, where their money is going, how to grow their money through interest, and alternative ways to save for the future. This may sound like gibberish to them, but by the time they hit 18 years old, they will be thanking you so long as you stick with it.

When shopping around for a bank account for your teen, consider this:

• How much interest will they earn?
• Are there fees associated with the bank account?
• Is there a minimum balance required?
• Will the bank automatically change their account from a child to an adult account when the time comes? You don’t want unsuspected fees and interest rates to apply at that point.
• Chequing or a savings account? If they have a job, they are better off with a chequing or student account. A savings account is great for younger teens to learn the importance of saving money if they won’t be taking money out very often.

Tax-Free Savings Account

Don’t forget that your teen can open a tax-free savings account, also known as a TFSA when they turn 18 so long as they have a social insurance number. A TFSA is a savings account to motivate Canadians to save money by putting it aside with the purpose of gaining interest. It does have a few specific features you’ll want to learn about so you can inform them properly if you don’t already know them so be sure to check out this article when you get a chance.

However you decide to inform your teen when it comes to their financial habits, consistency is key. But, the more we explain the benefits, in a variety of ways, and with examples, the more it sinks in. Long-term it’s a solid investment of your time to help ensure that they will be able to maintain healthy financials throughout their lives while working towards achieving their own financial goals. Then when the time comes for them to fly the coup you’ll know that they not only have their down payment set aside but that they have the tools they need to take care of that monthly mortgage payment as well. When that time comes don’t hesitate to give me, Darren Robinson, a call at 705-315-0516. I am always happy to help you and your family better understand your investments or mortgage options and to help you build a solid financial foundation for the future.