Teenagers and money are soon parted. But if they’re to Pass Go and become financially savvy adults, parents have a job to play to impart the financial facts of life.

If you’ve got a real live teenager in your house you’ll know that lectures don’t’ work. What does, is hands on money management, combined with consequences and backed up by discussions.

Give them an allowance. Teens need to be let loose on budgeting and spending to learn on the job. Give them an allowance that covers their clothing, entertainment, phone costs and other gratuitous spending. Or give them an allowance for the essentials and get them to earn the rest with a part time job. If your teen has a choice between public transport and self-propelling to school on foot or by bike, then include that in the budget. If you need help working out what the right sum of money is, start with what they spend now. Discuss how they budget their money and track spending. The Spending Tracker app on Android or iPhone will help, or a budgeting app such as Wally+, Toshl or YNAB.

Open bank accounts. Your teens need to start managing their own bank accounts and EFTPOS cards. It’s a good idea to give them a transactional account and two “savings” accounts, even if they only have a small allowance. That allows them to separate spending and saving money.

Teach them about saving. At the beginning of each month pay their allowance into the transactional account and get them to transfer savings to the other two accounts. Or if you can, split it between the three as the money goes in. That way they learn the value of separating their income and planning/budgeting for the future. Getting them to set goals for things they want to do or buy is invaluable. The long term savings account could be money earmarked for their first car or university costs or it could be transferred to KiwiSaver to go towards the deposit for their first home.

Let them fail. If your children make financial mistakes early they can learn from them. Running out of money just before they’re due to go out with friends is an invaluable learning experience. Ignore the whining, yelling, and emotional blackmail. Tough love really works. In the real world no-one is going to give them money for nothing when they run out. Wait for a calm moment on another day and talk about what happened.

Talk, talk and talk more. Your teenagers learn through their own actions combined with discussions designed to make them reflect on their earning, spending and saving. Topics to discuss around the dinner table or in the car can include:

  • Needs versus wants. Teens are wired to want things. So this is an essential.
  • How small regular savings add up.
  • What a mobile phone costs to run.
  • How to buy and insure cars and what it costs to run them.
  • How different families have different priorities, such as cars, holidays, eating out, saving for the future.
  • How many hours work it takes to buy XY or Z.
  • Why some people spend when they don’t have the money.
  • Why you give to charity
  • The interest and fees cost of hire purchase

The more you can personalise these discussions to your family or teenager’s own situation the better. Use day to day events such as what they’ve spent at the dairy or McDonalds to start conversations. You want your teen to make decisions based on all the facts, not just what springs to their underdeveloped minds.

Discuss debt. As soon as your teens turn 18 the banks will shower them with invitations to open a credit card account. That’s a dangerous thought. They’ll see friends get hire purchase, or be convinced by sales people that at $5, or $10 a week they can “afford” the flash shiny thing in front of them. Teens need to understand what credit costs. Do the sums with them to show how much more than the next person they’ll pay to buy the same item if they get it on credit. Discuss the long term effects of consumer debt.

Provide incentives. Encourage money making and saving ventures. You could offer them work around the house over and above their allowance. Or encourage them to look for work in the community. A simple leaflet drop is a great way to get babysitting, house cleaning, car cleaning, and other odd jobs. Some parents match dollar for dollar children’s earnings. John Cowan of the parenting centre matched his teenagers’ savings when he approved of the goal.

Teach them to read the fine print. Teenagers like adults need to understand that they sign legal contracts with the bank, mobile phone companies, loan providers, insurance companies and so on. Read through a few of them and point out the relevant clauses. They won’t be surprised then if their insurance claim is turned down because they were drink driving, or they have to pay for expensive mobile phone charges that their friends racked up when they borrowed the phone. Make sure they understand the consequences of contracts.

Finally, the doctrine of Money See Monkey Do really works with teenagers and money. We can all become better at managing our money and owe it to our children to do so.