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Ask the Expert – June

Independent financial expert Harvey Jones
tells a parent how to help their teen manage money responsibly

QuestionAnswer

“I have a wayward teenager, but I want to trust them to manage their own money. How can I help them to be more responsible without letting go of the reins entirely?”

You’re not the only parent wondering how to control their teenager. It isn’t easy. Parents face a tricky balancing act between imposing order and giving kids the freedom to make their own decisions – and mistakes!

There are plenty of ways teens can go off the rails, and mishandling money is one of them. But rest assured you can help them manage their money better.

Start them early

Child with money

As ever with kids, it helps if you start the good habits early. If you set up a savings account in their name while they were young, they will hopefully have seen the benefit of setting a little aside every so often.

If you haven’t – better late than never. Visit a price comparison site such as Moneyfacts, to find a good children’s savings account. These are usually available to under 16s. If your teen is 17 plus, many banks and building societies offer young person accounts, or allow under 18s to sign up for their standard accounts.

"Set the ball rolling by paying in a little yourself"

Set the ball rolling by paying in a little yourself. Hopefully, the money will stay in the account long enough to earn a little interest. Then, next year, thanks to the miracle of compound interest, it will earn interest on that interest, giving your child even more money. And so it goes, year after year. That’s if they don’t blow it in the first week of course.

Set a budget

I don’t know how much pocket money you give your teenager, whether you pay them for doing chores around the house, or if they have a Saturday job. But it’s a good idea to set them a weekly or monthly budget, and make them stick to it. If they blow their budget on the first day, they will hopefully have learned a valuable – and painful – lesson. No more money means no more ringtones, downloads, or shopping trips with their friends until the next week or month. Don’t cave in and make up the shortfall. All that will do is send a message that if they run up debts, there will be no consequences.

You should definitely set a separate monthly mobile phone budget. This may curb the constant texting and talking to friends, or at the very least, keep it affordable.

Girls with mobile phone

Alternatively, you could hand over the responsibility of running a clothing budget for a year. If you’re feeling brave, you could work out how much they need to spend on clothes over the next 12 months, and give them all the money up front, on condition that once it’s gone, it’s gone! This could backfire if they spend it all on summer shorts and t-shirts, and shiver throughout the winter, but again, valuable lessons will be learned.

 

You could go the whole hog and put your son or daughter in charge of the family grocery budget. Try sitting down and drawing up a weekly menu together, then pack them off to the supermarket to buy the ingredients. Again, make sure they stick to a budget. You could even offer a financial incentive by letting them keep, say, half of any money they don’t spend. This will help them hunt out bargains, a useful skill to take into adulthood. They may be shocked and impressed to discover how much planning goes into feeding a family, and how expensive it is. It certainly shocks me!

Show them the money

You could talk them through other bills you have to pay, such as the mortgage, rent and insurance, and utilities like telephone, gas, electricity, council tax, broadband and cable TV. Explain how the essentials have to be covered first, before you can spend on hobbies or socialising.

"the essentials have to be covered first"

If you have an online bank account, you might want to show your child how it works, and how you use it to control your income and outgoings, by setting up Direct Debits, standing orders, and so on. They may find this a bit boring, but familiarising them with practical elements early will make it less scary when it’s their turn. And some valuable lessons may stick.

Perhaps the most dangerous thing you can give a teen is a credit card. In adolescent hands, that is a weapon of mass financial destruction. Giving them a prepaid card however is a different matter. This is similar to a credit card but safer, because they can only spend money previously loaded on to the card. It stops them running up debts as they can’t spend money they don’t have, unlike a traditional credit card.

A prepaid card is also safer to carry than cash. It is protected by a Personal Identification Number (PIN), and if they lose it they can get a replacement. They can also use it to shop online. There are charges for setting up and using a prepaid card, so make sure both you and your child understand these.

Teaching our children about money is more important than ever. Many of the current generation will enter their adult lives in student debt. Saving enough to buy their first home will demand money management skills. So the earlier they start to hone these, the better.

There is plenty of support online. Minted, the young person’s guide to managing money, is a great place to start and is available from the Personal Finance Education Group. It is written by young people for young people, and covers topics such as saving for the future, paying for college and university, and managing everyday cash.

Your stroppy teenager may not thank you for trying to put them on the financial straight and narrow. That’s teens for you. But they will appreciate it one day.

Minted
  • If you have a general financial query or dilemma unrelated to a specific financial services provider, email Harvey at asktheexpert@virginmoney.com.
  • Harvey regrets that he cannot answer your questions individually. These are his personal views and not those of Virgin Money. Nothing in the article constitutes legal, financial or other professional advice.
  • If you have a specific financial concern, you should always seek your own professional financial advice.
  • Links to external websites are for information only. Virgin Money receives no income from them and accepts no responsibility for the website content.

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Links to external websites are for information only. Virgin Money receives no income from them and accepts no responsibility for the website content. The information in this article is correct as at 13 June 2012.

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