Tips for Teens: Establishing a Savings Habit With Your First Job

Though this might really date me, I fondly remember the Cosby Show episode where dad Cliff sits down with his teenage son, Theo, and using play money, shows him how much it will cost to live on his own. Theo’s smile and jaunty attitude quickly turn to a frown and utter dismay when he realizes how quickly money goes. (Check out the clip here!)

In my experience, most kids have no idea about money — how much work it takes to earn it and how quickly it disappears. Add to that their desire to have everything immediately, and you’re looking at the potential for financial chaos.

The earlier you start teaching your children how to manage their money and save for the future, the better. As soon as your child lands his first part-time job, you should go over all the basic money management skills  — budgeting, saving, setting goals, and separating wants from needs and wishes.

Be sure to share these helpful tips with your teenager:

• Open both a checking and savings account at the credit union. Get direct deposit (if available) at work so your check goes right into your checking account. It’s fast and convenient.
• Set up an automatic transfer into your savings account of at least 10% of your take home pay (that’s only a dime of every dollar!). This is called “Paying Yourself First”! Don’t touch this money. Forget you even have it. Getting into the habit of saving now (even if it’s just a little bit), will turn you into a life-long saver.
• Draw up a budget showing how much you make, your allowance, any financial gifts from relatives, and any other sources of income. Write down everything you have to pay for (clothes, movies, gas, your cell phone, etc…). Don’t forget to include a listing for “mad money” so you won’t miss doing fun things with friends and one for savings. Don’t just save what you have left over — make it a priority!
• Write down some goals for your savings account — a car, a new cell phone, money for college, etc. Figure out how long it will take you to save the money you need to reach your goal. This will help motivate you (save extra when you can!) and teach you about delayed gratification.

As a parent, you need to get real with them (like Bill Cosby did) about what it costs to live: rent, car payment, cell phone, clothes, food, car and health insurance, utilities… all of it. This will give them a better idea of how much life costs.

Your relationship with money is also very important. If you’ve got big credit card bills, go on mad spending sprees and openly discuss the fact that you have nothing set aside for retirement, your kids are likely to think this is ok. Modeling good financial behavior is an excellent way to teach your kids about the importance of saving and being fiscally responsible.

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Pop Quiz: Who do you think will have more money when they retire at 65?

A)       Ben, who invests $16,000 over eight years from age 19 - 26, or

B)        His dad, Arthur, who invests $78,000 over 39 years from age 27 - 65?

For the answer, check out this incredible savings chart, developed by Dave Ramsey.

Show this to your children. If this doesn’t convince them of the importance of saving, and doing it early, then nothing will.