Friday, October 19, 2012

Teens, Financial Literacy and Entitlement Issues

Let's have the talk.... 

Teaching your teen to be financially literate is a priority. 

While encouraging good grades in school, sportsmanship and respectfulness are all a part of parenthood, teaching about money also plays a profound role. Educating your family about financial literacy and creating a healthy monetary environment will equip your children with the skills to make good decisions now and in the future.

Money management, credit card responsibility and valuing the dollar are lessons that will help your teen develop good characteristics and become a good member of society. Before you hand your teen a credit card and wads of cash, keep in the mind how financial illiteracy, money carelessness and even entitlement can have a significant negative effect on your teenager.

The Teenage Brain
If you're thinking about providing your teenager with a credit card, remember to emphasize to your teen how this little plastic purchasing tool comes with high risks and long-term consequences that they're most likely unaware of. According to Health, the teenage brain is actually attracted to risk-taking behaviors. In other words, "teens' senseless choices may result from biological tendencies." explains that research shows teens are very aware of risks and consequences, such as unprotected sex and STDs, rather they're more drawn to the unknown risks. Think excessive, irresponsible credit card use and frivolous purchasing. Agnieszka Tymula, the lead author of a study on adolescent risk taking behavior, stated, "adolescents engage more in unknown risks than they do in known risks." Because of teenage information processing, they also tend to fixate on the rewards.

Rewards vs. Risks
Teens like rewards — rewards like the instant gratification from owning a smartphone or admiration from peers for wearing designer clothes to school. On the other hand, risks like a poor credit score, credit card debt and identity theft, go unacknowledged in the teenage mind. Teenagers want those rewards, and now, regardless of the risks associated with obtaining them. Teens aren't thinking about long-term consequences, such as debt collection, or how Lifelock protection would safeguard their identity.
Purchasing a future home and credit checks, for example, aren't typically going to have a profound effect on the decision to purchase something in the moment. Protect your teens' future and spending habits by emphasizing how and when to charge a purchase. Teach your family to be financially literate with crash courses on how to use credit cards and practice healthy monetary habits that also contribute to good character traits.

Financial Literacy & Teen Entitlement
Teens feel invincible — invincible from consequences and free of responsibilities. You lecture them on the risks of drinking and having unprotected sex and then cross your fingers that when your teenager walks outside your line of vision, he or she will make good decisions. While trying to prevent car accidents, teen pregnancy or failing grades, teaching your teen about the value of a dollar may be a battle you choose to lose. Perhaps you enforced an allowance for walking the dog or washing the car, but eventually as life got busier and more complicated, you gave in.
What's at stake with a financially illiterate teenager? A respect for work ethic, responsibility and gratitude. What's to gain? Entitlement. Teenagers with a sense of monetary entitlement can start to develop character flaws such as disrespect and a lack of appreciation for money, working and earning the privileges that you're awarded. Financial literacy is the idea of teaching our children at a young age about the exchange of money and what it takes to have that iPhone or wear those Nike Air Jordans.

Keep in mind teens don't necessarily need to know about the family's financial details, such as mortgage payments or 401(k) plans. Financial literacy starts with instilling good values so that they're not only developing good character attributes, but preventing poor monetary habits that can lead to serious financial troubles in the future.

Money Management

Teach your teen to be financially literate by starting with basic money management and personal financial skills — tailored to the teenage life. From a new car and gadgets to social expenses and extracurricular activities, teenagers face decisions about money and challenges on how to pay for what they desire. Margaret Magnarelli, senior editor of Money magazine and author of Per$onal Finance, tells that "the first step to [a teen's] financial understanding should be taught by parents."

Teach your teen money-management skills with the following:
  • Communicate: Make time for creating dialogue around desires and purchases. If your teenager asks for money for new clothes or video game, Magnarelli suggests asking, "what it would take for you to save up to buy that?" or "How many hours of your part-time job would it take to achieve that?" Once you've started the conversation, find a fair solution. As a team, establish a savings plan. For example, agree to match your teen's $20 weekly savings for costly items such as an iPod. Make a bargain. For example, offer to pay for weekend activities with friends as long as your teen takes care of weekend chores.
  • Say No: Listen to your teen's request and digest the reasons for why he or she wants something. According to's MoneyWatch, a quick no marks parents as "intransigent, uninformed, and simply out to make [your teenager] miserable." Start a conversation, acknowledge your teenager's point of view and explain why you decided to say no.
  • Practice What You Preach: Instill healthy money habits by setting an example. Show your family the value of budgeting and saving by vocalizing smart financial decision making. For example, explain how paying for piano lessons or going on a family trip are more meaningful to your family than bringing the latest gadgets into the home.
  • Set Priorities & Limits: Ensure that your teenager knows how to distinguish between a want and a need. New shoes for cheerleading could actually be a need that takes precedent over a designer pair of jeans. Although there's nothing wrong with "wants," establish limits and be consistent when you do buy something for your teenager. For example, while school shopping, provide a price range for a new pair of shoes or set a budget for how much you're going to spend on clothes. Decide ahead of time what you're shopping for to avoid impulse spending. Also teach your teen about delayed gratification to prepare them for responsible financial habits as an adult.
Contributor: Kevin Parker

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