Helping Your Teens to be Realistic about Money

Written by Laurie Lafortune

Only a small percentage of people are wealthy, and every adult except the very rich has to make choices about spending and saving that involve doing without some things we want.  What adults earn frames our choices around what home to live in, what car we drive, what vacations we take, what clothes we buy, how much we can support a charity…and on and on. Living within your means is an essential concept and one that parents need to help their children to understand. This can be one of the most difficult things to realize for teenagers, especially if you, as a parent, have tried to provide everything they want. At the heart of living within your means is an understanding of needs and wants.

At my teens’ high school, many of the teenagers’ cars were much newer and nicer than the teachers, purchased for them by their parents for various milestones or birthdays. Some of us parents began discussing this, wondering how many teens have more money to spend on themselves at age 16 than they would ever have again. Will their adult career provide the kind of car, vacations, travel, clothes, and home that they have been used to? Would they be dissatisfied as young adults when they realized they couldn’t have the same lifestyle that their parents had provided?  Or, would they be motivated to study, work hard, and try to achieve financial independence? We didn’t come to an agreement in our discussion, but one thing we did agree on, was that advertising has created a situation in which many people have trouble telling the difference between needs and wants.  And that it’s important for children and teens to understand the difference.  It can be tricky but basically needs are such things as food, shelter, clothing, transportation, communication and wants are those things we can do without.  Or the need may be for food, but the want is to go out to a restaurant.

Parents can help their children understand the difference through discussion for example, you need transportation, but it doesn’t have to be a new car. Having a vehicle for our family is a need, but having certain brand, size or luxury vehicle is a want.

You can go look through the closet and identify which of the items are wants and which are needs. When it’s time for back to school shopping, go through last year’s supplies and see what can be reused, or what they need.  When it’s time for clothes shopping, shoes that fit are a need, but a particular designer bag is a want. One teenager after getting his first part time job described how he figured out the difference between needs and wants. His needs were still being taken care of by his parents (food, clothing, school supplies and fees). So for wants, he looked at how many hours of work it took to earn the cash for the item and asked himself if that item was worth the 4 hours of his time and hard work. Sometimes his answer was yes, but often it turned out to be no, and he decided against the purchase, or bought a less expensive but similar item.

For teens, you can show them the utility bills, phone bill and grocery bills, talk about the real costs of having a home, renting an apartment, owning a car. (Many teens think the price of a car is all they have to consider, so show them the costs of registration, insurance, repairs, tires and how much fuel costs).

Teens also need to learn about taxes, and should have an idea of what taxes adults are required to pay.  When they are thinking about getting a job, they need to know the difference between gross and net income, and the taxes and employment deductions that will come off their paycheck. They also will need your help to make sure they file their tax return in the spring.

They should have an idea of what the average pay is for types of work, and then they can see how far that goes in covering expenses. Many teens simply do not know what expenses are for a typical family. They are shocked by the cost of groceries and all the other expenses.

As parents, we need to help our teens prepare for the adult world by helping them distinguish between needs and wants and providing facts about income and expenses.