In our circles of friends, my husband and I have some of the oldest kids. So we are often asked, “How to. . .” type questions regarding the challenges of raising big kids into functioning adults. One question we get frequently is, “How do you structure finances with your kids?”
Growing up, I wasn’t taught much about money. Nor was it a topic I was curious enough about to learn about on my own. So I was never a saver. Not by nature, nor by learning. I was a spender. Because what was money for if not to spend joyously?
I didn’t know the topic of money would eventually saturate every area of my life and seep into nearly every decision I would make.
Lured into applying for my first credit card in college by the “free” gift of a giant candy bar, I didn’t yet understand the dangers of debt. I only understood that credit card would be my ticket to Nordstrom’s and a brand new outfit or three.
I graduated from college with steep debt in the form of student loans, a hefty car payment, and the balances I carried on two credit cards. That debt led to more debt —debt I wouldn’t get out from under for 20 years. As a result, I’m now crystal clear on the dangers of debt. And I hope to teach my kids those dangers so they won’t have to learn them the hard way too.
When our teenagers got their first jobs and started to earn an income, their dad and I began to help them shape their future financial health. We offered them the world’s best 401k, of sorts. We established joint checking and savings accounts with our kids and asked them to put half of all their earnings into savings. The stipulation was they couldn’t use their savings for anything other than buying and maintaining their first car or paying for college-related expenses. To reward their saving efforts, we matched their savings contributions.
In this manner, we helped each of our kids buy their first cars.
Once they had their own vehicles, we no longer matched their contributions to savings. Going forward, we set the following terms: as long as they agreed to continue to save half of their income and only use those funds for car repairs or college expenses, we agreed to pay for their gas and car insurance each month.
In addition, our kids were financially responsible for all repairs and maintenance on their vehicles. We wanted them to understand the importance of not spending beyond their means and setting aside funds for unexpected, but inevitable, expenses. It’s no fun to have to buy new tires. It’s even less fun when you don’t have the money to buy new tires.
Our thinking was that paying for their gas wasn’t an extra expense for us as we had been driving them everywhere they needed to go anyway. We were also willing to pay their base car insurance rates as an incentive to continue saving. But if they lost their good student discount or caused a car accident, they’d be required to pay the resulting rate increase.
In short, we financially incentivized good study habits and safe driving.
If at anytime before they turned 18 our kids opted not to continue to save half their incomes, they’d forfeit the benefit of us paying for their gas and car insurance. Both of our kids bought into this method of structuring family finances. We wanted them to understand they were getting a great deal. And we wanted them to learn to save and budget for their future goals and needs at the same time.
Raising teenagers is expensive, a concept our kids won’t fully understand until they’re raising teenagers of their own. As teens’ expenses mount, it’s important for them to pitch in and take some of the financial pressure off their parents. Not only does this help balance family finances, but it helps them become cognizant of how money can work both for and against them, as well.
Whether you can afford to subsidize your teenager’s expenses or not, it’s essential to teach them ways to be financially responsible. Any system parents can devise to promote saving and delayed gratification, budgeting and planning for expenses—and instill motivation to employ these strategies consistently—will help set their teenagers up for future financial health and well-being.