Monday Reader Question: Are Teenagers Spending Their Money Wisely?

Starting today I am starting a weekly series of QnA. If you have a question you would like me to address, please use the contact form. I respond to all emails.

A reader sent me a question regarding the spending patterns of teenagers. Without getting in personal details in the email, the question boiled down to “Are teenagers spending their money wisely?

I don’t believe in such generalization. When I was in teens, I had friends who I believed were spending too much and I also had friends who in my opinion were too conservative when it came to spending. However, if you think your kids in teens are not spending money wisely, then you may have to become proactive and take some action.

Teenage is an important phase in one’s life, it’s the phase where we form habits that stay with us and become part of our identity.

If as a parent or caretaker, you can take these steps, you are helping your teenagers become conscious about their spending and to build a strong foundation for their personal finance.

teaching teenagers about money

Shop only when you need to shop: Shopping trips and tagging along with people when they go for shopping leads one to spend money on items they don’t really need in the near future (or ever). Avoid such trip until you have a list of items you need. Encourage your kids to use their free time by engaging in activities or recreational reading which will be more fruitful and will lead to more satisfaction in the future.

Stop shopping with friends: If often happens that when teenagers go shopping with friends, they buy things in peer pressure or without objectively thinking about their purchase. You can take your teenagers shopping with you and help them make conscious decisions.

Avoiding impulse purchases: Impulse shopping leads you to spend on items you think you want but may really not want. In order to avoid impulse shopping, try sticking to a list. If you see something that you like but that is not on the list, don’t buy it in that trip. Add it to the list as a probable purchase for the next shopping trip. You will get time to think whether you really want to buy that item. Often, it happens that you cancel the item from the list when you review your list.

Teach them the value of money: If your teens are making an income by doing work, they already realize the value of money; if they are not working, show them how many hours it takes to earn the amount of money they plan to spend.

Talk about money: When you talk about financial matters with your family members and involve your kids, they start learning about the choices you make. Take their views in consideration and explain to them some of your financial decisions.

Start Investing: Teenage is a good time to start investing, especially in long term assets like stocks, which can give you returns in the longer run. Also if your teenagers have income, Roth IRA may be a good option for them. Get them a basic book on personal finance, which will help them get started in the right direction.

Saving towards large purchases: If your teenager wants to make a big purchase, tell them to start saving towards their big purchase from their income or monthly pocket money. If you just fund the big purchase they will never learn how to save and make big purchases like home and car.

Review their spending: You want your kids to grow and take responsibility and part of that involves letting them take independent decisions, including financial decisions. I agree, but there is no harm in reviewing their spending periodically. This will have two effects:

  • Knowing that they are answerable to someone, will help make them better choices.
  • You will be able to spot patterns which can lead to bad spending habits over time (which teenagers cannot spot due to lack of experience) and you can highlight it to them.

Let teenagers make small mistakes:  Making mistakes and learning from them is how we all improve. So let teenagers make some mistakes, even small financial mistakes and encourage them to learn from their mistakes. You can also share with them the financial mistakes you have made and the lessons you learned by making them to help them be more wise with their money.

photo by: martinak15

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