The old cliche, “you can’t teach an old dog new tricks”, really hits home when it comes to personal finance. The older we get, the more set we become in our habits whether its the ability to save money, biting our nails, or cursing like a sailor. One of my passions to help spread good, sound financial principles to young people across America. So few high school and college students graduate without any knowledge about how to manage their own money. They may learn how the stock market works, but they have no concept about personal investment theory, putting together a budget, buying a house, or saving money for the long term. It’s time for my generation to step up and do something about it. We need to take action and help middle school and high school students understand how to manage and save money. One of the best ways to help a teenager learn about saving money is to give them an incentive to save it. One of the biggest items that a teenager craves when they turn 16 is buying that first car. It’s more than wanting a sweet looking car, it’s about freedom. Parents go nuts thinking about the freedom it gives that teenager, and teenagers salivate over the thought of that freedom. You can use the purchase of a car as a learning tool by setting up a savings program for it.
At the age of 13, sit your teenager down and begin to explain to them that they may not be fantasizing about owning a car right now, but they will most likely be thinking about it in 3 years. Here are a few programs that may work with your teenager to help them save for their first car and teach a lesson about saving money and build quality personal finance habits.
- Sit down with your teenager, and put together a 3 to 4 year savings plan. First, set a goal of how much they want to save to buy a car with cash. NO FINANCING! You’re first car doesn’t need to be a NEW car! List several activities that the teen can perform for extra money. These would include chores out of the ordinary. Clearly define which chores are done because they are a part of the family and which chores will receive compensation upon completion. Draw up a hypothetical situation where if they do 2 of these chores for the next 3 years, then they will have X amount of dollars saved towards their first car.
- Talk to your spouse about matching the amount that the teen saves to put towards a car. This adds the factor of incentive into the equation. Tell your teen that you will match their savings dollar for dollar, but only towards the purchase of a car. If they save $2,000, then they can buy a $4,000 car. If they save $10,000, then they will buy a $20,000 car. I would put a limit on this, because you never know, you may have a very entrepreneurial teen that ends up saving $20,000 over a 4 year period! You probably don’t want to be stuck shelling out 20 grand AND allowing them to drive around a $40,000 car. What this program does is gives the teen something to work for, and this is not something out of reality. Many companies offer a 100% match for contributions up to a certain percentage amount. Your teen will find creative ways to save, and they will be motivated to save knowing that they can have double the car if they save more than expected.
There are many other ways to help teach a teen the value of saving money. Make sure they are always putting aside a certain percentage of their saved money towards giving to others. If you teach them the value of giving at a young age, they will grow up to be generous and kind citizens in the future. Greed kills marriages, friendships, and destroys careers.
I’m not a parent yet, so I would love to hear from some of you parents out there with any of your thoughts or suggestions about helping teens learn how to save money.