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Teaching teens about money
It’s a natural part of growing up: Most teens want what
their friends have, whether it’s the latest iPod or the
newest smart phone. But how do parents keep their kids’
expectations in check? Teaching teens how to manage
money is crucial not only to helping them make wise
choices about spending, but also to becoming independent
adults. To help you get started, consider some of these ideas for raising financially savvy children.
Preteens
It’s never too early to start talking to your children
about money.
• Starting at around age 12, consider giving your children
an allowance with no strings attached; in other words,
give them a small sum weekly to spend on anything
they’d like. This will help your kids learn what it feels like to have their “own money.”
• Open a savings account, if you haven’t already done so,
and encourage your children to start saving early.
• Motivate preteens to save by offering to match all or part of what they save toward a long-term goal. For
example, for every dollar your child sets aside for college, you might contribute 50 cents or more.
Ages 13 – 14
As your children reach the teen years, you’ll want to
encourage financial responsibility. For example:
• Set spending and savings goals — and have your teens
write them down to make them more concrete.
• Give teens their lunch money as part of their allowance
as a way to teach them how to manage a fixed sum.
• If your kids have cell phones, go over the monthly bill to
discuss the cost of voice and texting usage — and hold
them accountable for extra charges if they go over their
allocated minutes.
• Introduce the concept of needs vs. wants and show your
teens how to budget and save for larger expenses.
Ages 15 – 16
Continue to discuss the concept of budgeting to bring it
to life. In this stage, have your teens write down a list of
five to 10 short-term financial goals, such as new sneakers,
concert tickets or a team jacket. Then do the same for
long-term goals, like a car, college or graduation expenses.
• If you routinely pay for your teens’ activities — say a
weekly movie ticket, birthday gifts for friends or an
occasional dinner out — take an average of what you’re
providing and consider adding that to their allowances.
• Talk with teens about saving money for college, including
the cost of tuition, room and board, and other costs. This
is a good time to set the stage for how much you expect
your teen to contribute to their education.
• Give older teens a clothing allowance and have them
subtract all their purchases from that total. By saving
their receipts, they can quickly see the impact of their
spending choices on their “bottom line.”
• If your teenage children want to get jobs, consider
setting some rules for how they allocate their paychecks.
Some families require their children to allocate a portion
of their earnings to charity and another portion to
savings. Then let them spend their discretionary money
however they want.
(continued)
Ages 17 and older
As your teens grow in age and responsibility, turn over
more control of their spending. For example:
• Shift from a weekly to a monthly allowance and make
them responsible for managing that money either for
food, clothes, books or other expenses.
• Open a bank account with a debit card and show them
how to manage withdrawals.
• Create a savings plan by helping them to fund a Roth
IRA. If they have earned income from an after-school or
summer job, use their account statement to track their
progress and to demonstrate the power of compounding
over time (see example to the right).
• If your teen is responsible, a prepaid debit card or a
student credit card with a low limit can also be a great
teaching tool before they head off to college. Explain
how fees will be charged if payments are not made on
time and that finance charges will be added if they don’t
pay the bill in full each month.
As with any new learning, the more opportunities you give
your teens to demonstrate sound money management,
the better off they will be. The sooner you get started, the
easier it will be for your teens to make sound decisions
about their money, not just today, but as they grow to
become independent, financially savvy adults.
For further information on financial planning
We invite you to visit mybmoretirement.com or call the My BMO Retirement Line at 1-800-858-3829.
Getting a jumpstart on retirement
If your teen has earned income from a job,
setting up a Roth Individual Retirement Account
can be a smart and rewarding move. That’s
because the power of tax-free compounding
provides the potential to help turn a little
money into a lot, given enough time. To see
how much, consider this hypothetical example.1
Let’s say your child works through high school
and puts $500 a year ($41.67 per month) into a
Roth IRA. Assuming an average annual return
of 6 percent, compounded monthly, your child’s
$2,000 total contribution would grow to $37,710
by the time they reach age 65 — and that’s
if your teen doesn’t add another cent to the
account after graduating from high school.
$40,000
$35,000
$30,000
Contributions
$25,000
Total account value
$20,000
$15,000
$10,000
$5,000
$0
1
6
11
16
21
26
31
36
41
46
51
This hypothetical example is for illustrative purposes only. It is not
intended to represent the performance of any specific investment. Past performance does not guarantee future results.
1
BMO Retirement Services is a part of BMO Global Asset Management and a division of the BMO Harris Bank N.A., offering products and services through various affiliates of
BMO Financial Group. Investment products are: NOT FDIC INSURED – NO BANK GUARANTEE – MAY LOSE VALUE.
©2012 BMO Financial Corp. 11-325-013 (09/12)