It is a good idea to start teaching your teen how to budget and manage money before they are old enough to move out. This will help them when they are on their own and may help them to avoid overextended credit and bankruptcy.
The first thing kids need to realize is that money does not grow on trees and will not always be handed out by family. And when they are old enough to do chores, it will be better in the long run if you instill the sense of 'earned' money in them instead of handouts. Increase their responsibilities as they get older and more capable of helping out around the house. Encourage them to get a job. Decide on an allowance rate and discuss it with your child. Give them a place to keep their money. A piggy bank works for a younger child, and an older child may be ready for a savings account.
Financial experts say that by the time your child is 7 years of age, they should be able to recognize coins and understand the basics of money.
When you feel like your teen is ready, go with him to the bank and open a savings and checking account. If they want to withdraw money, don't discourage them or they may not want to save anymore. And if they take the money out, then they may realize the value of saving for something they want. Show your child how to record transactions and deposits, and how to keep track of how much money is in the account. Going over your own budget with your child helps them understand the cost of being the primary responsible person for the household and the costs associated with living on your own. Let them help with cutting coupons, preparing a budget for the households grocery list, or other expenses.
It is also important to discuss with your kids the effect of borrowing money and paying back interest, especially on high interest rate items like credit cards. I don't think it is a good idea to hand a kid a credit card, even during their first year of college. And speaking of college, be sure to discuss student loans that are readily available to students, and the long term effect of paying them back years later.
Making a budget with your child is also a good lesson. Setting up a personal budget may include items such as car expenses, clothes, entertainment, sports, toys, and savings. There are also many resources available online to help with making a budget. Be sure your child understands there are limits, and don't bail them out financially every time they get into trouble with their money. Also talk to your child about items in the budget, like what is a necessary cost compared to something they just want.
Talk to your kids about the items they are considering to purchase. Teach them to ask themselves if the price of that article of clothing is really worth it, if the item will last, or how does the price compare to others? Another method is to use time instead of money. For instance, if your daughter babysits and wants to buy a new pair of designer label jeans, ask her if one pair of jeans is really worth 20 hours of babysitting. Teach them how to differentiate between what is needed and impulse buying.
One way to encourage saving is to match what they save. Start off small by matching a quarter for each dollar that they save. Another idea when their savings has grown some is to teach them how to invest in stocks, bonds, mutual funds, or other options.
Be a role model! If your teen sees you shopping wildly and running up credit card debt, don't be upset if they do the same.