The teen years are the dress rehearsal before adulthood. Parents’ role now is to continue to increase funding and responsibility before your teens becoming legal adults financially. To expect an 18-year-old who has been spending money freely to make an overnight transition to spending as a responsible adult is unrealistic.
When we give children money without responsibility we allow them to develop these free-spending habits. These habits become ingrained as a child gets older. The most critical years are those last few years before becoming a legal adult—the teen years.
Becoming legal adults financially
Teens, in our society, have the best of both worlds by having a considerable amount of spending money with few recurring debts. We know that most of a teen’s money is spent on entertainment (movies, music, games), clothing and snack food. We also know that moar teens are not spending money on housing, groceries, insurance, or loans. This all changes when them become working adults.
According to a recent BLS survey, the largest expenditures for working adults were housing and transportation, which comprised 26 percent and 13 percent of people’s take-home pay, respectively. Another big spending category was food, to which 10 percent was devoted. U.S. Bureau of Labor Statistics (BLS).
Compare that with teen spending.
American teenagers spend around $2,250 a year on average, mostly on food, clothing, and entertainment. Taking Stock with Teens – Fall 2021
Do our young adults feel prepared?
53% Despite taking a financial literacy course, I don’t feel prepared for the financial responsibility that comes with adulthood. T. Rowe Price
One of your jobs as a parent is to help your teen make the transition to the adult world of money. You do this by creating a semi-independent stage where your teen can learn how to use money tools safely.
Money to transfer to their control could include: school, gifts and donations, room, entertainment, activities and hobbies, communication, clothing, personal care, and transportation. Over the years we added more money and responsibility for our daughters. By the time they were in high school our daughters were managing 100s of dollars each semester on their day-to-day spending.
When we transferred multiple spending plan amounts to our daughter’s account she looked at the large number and said, “You mean I have to manage all of that?” She had to learn a money management skill that many young adults struggle with.
64% of teens look to their parents or guardians for financial advice. (Source: Junior Achievement)
Your teen still depends on you for most or all of the funding, but will be making money decisions in a realistic context. In creating this real-world money situation, the no-cash allowance provides a consistent process that teens can use to learn money management before becoming legal adults financially.
An excellent credit rating is one of the most valuable assets any adult can have. This book is a great primer for parents who want to instill responsible money management habits in their children. And, those habits will help ensure “credit-worthiness” in adulthood. – Patricia, retired bank executive
Allowance anecdotes
We need a raise Our allowances were age-based with raises on birthdays. Then one day, our daughters sat us down for a meeting. “We need a raise,” they said and proceeded to lay out several reasons for their request in a most professional presentation. We listened while being so impressed that we were receptive to their demands. After negotiations the new allowance rates went into effect.
One teen’s experience A friend started the no-cash allowance with her teenage daughter. The teen figured out how much she spent in different categories and used her debit card for purchases. Mom and daughter reviewed the statement and found a big surprise. Her budget for “coffee with friends” was blow away by the amount she actually spent. However, because this was an important social activity for her, she adjusted her other spending. It’s all about seeing the numbers.
Labor negotiations: We did a weekly drawing for job cards, some with pay and some not. They had to complete all the jobs before adding their earnings to their accounts. Then one day, they approached us demanding labor negotiations. “You’re paying us too much for these jobs and not enough for these,” they said. We asked how they would adjust the rates. They pointed out specific jobs that didn’t take much time or effort and others that required more. After they suggested new rates, we agreed on the spot. My goal was for them to do the work, but listening to them showed they valued time and effort to each job.
When your kids track all their money as a number, they become better money managers.
Read more: Teaching your kids about credit cards
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