From a financial expert: How to teach teenagers about money

From a financial expert: How to teach teenagers about money

The Problem

I have been taking a lot of workshops for high schoolers, guiding them to take their raw and creative ideas and interests to a workable business solution. I call these the 'Pocket Money' workshop because that’s what it does; it empowers them to earn their own money by turning their passion/hobby/interest into a productive outcome. This, in a way, teaches them to validate their studied theories with the real life market and the people around them, engaging and motivating them to delve deeper into their area of interest. It also teaches them that you don't need to actually start a business to become an entrepreneur.

The Idea

On the contrary, entrepreneurship is a state of mind where you are open to take chances and risks to accomplish what you are really passionate for. Sometimes it pays you in cash and every time in experience. I have experienced that a lot of kids take money for granted, that we as parents make sure they splurge in luxuries as soon as they blow the bugle of their never-ending demands. This does more harm than good to them. They never get to learn the pleasure of achievment; it blocks their imaginative skills to find out creative ways to earn what they want. Not necessarily everything has to be taught through books; life gives us umpteen experiences which give us an opportunity to learn. Let your kids pass through those challenging experiences. No wonder 65% Indians lack financial literacy as reports here.

On another note, look at this mother duck teaching her tiny ducklings a lesson tougher than we'd ever be able to learn.

The Solution

Making kids street smart with money is the need of the hour. They should be trained enough emotionally, physically and mentally to take up any situation on their own - their reflexes need to be learned beforehand. The following are a few ways you can teach financial responsibility to them.

1. Get them good books on money management:

In my opinion, the top two books on finance for teens would be "Why didn’t they teach me this in school” and “How to make your money when you don’t have any."

 2. Give them Pocket Money

Instead of following the “ask me when you need it” method, you should follow the rule of giving a fixed amount on a monthly basis. This will help them also to cautiously track the flow of their funds. Though expenses by teens are mostly discretionary, budgeting can help both you and your teen discuss expenses comfortably, thereby respecting their privacy. You have to be open and appreciative of their expense sheet, otherwise they are not going to be receptive to your feedback. Constructive criticism not only helps you share your concerns, but it also drives them to follow your advice. You just have to keep your cool!

3. Open their bank accounts:

Open junior bank accounts for them so that they get motivated to put their savings each month into it. Teach them about interest rates in savings accounts, which can excite them even further. This could even kindle their interest in exploring more investment options. Include and discuss with them your personal financial problems/challenges.  Soliciting their opinion is very important. This in a way by which you can help/train them to get an edge on  future financial situations. The phenomenon is called 'situation awareness'. 

4. Appreciate their efforts on social media:

Accept it or not, social media could be one of the most important sources to help build self-esteem in your teen. Be generous with praises; share it with your friends so that people to them for financial advice. Allow them to help you and others (with reasonable expectations, of course). It’s a great way to imbibe a sense of accountability. If they go wrong anywhere, allow them to go through the course of natural consequences, instead of bailing them out.

5. Encourage their interest/passion/hobby:

Yes, you heard me right. Teaching your kids the meaning of financial independence is really important. They should understand that they are fortunate enough to have parents who can help them financially at any point of time, but it’s time for them as well to go out and explore the real world. Validate what they have been learning with some real time people/market. Right from a greeting card to a personal skill, everything can be sold online. Ask them to devote 10-20% of their total leisure time in selling. Part-time jobs over the weekends could be another interesting option they can explore.  Self-earned money is the biggest motivator for financial literacy. Remember, we all start with zero sometime. The sooner the better.

I hope to see more responsible and better informed teenagers thrive in years to come. Please do leave your valuable comments on the same.