TEENS – MANAGING MONEY

OVERVIEW

Financial success as an adult depends on a person learning, as a teenager, the fundamentals of managing their money. Teenagers benefit from learning about budgeting, financial management and credit when taught in a positive and fun way. Teaching teens early on gives them the advantage of preparing for setting and meeting goals and financial independence. You do not want to leave them with a negative perspective if your own financial situation has led to debt problems, credit card issues, a consumer proposals or even bankruptcy. Give them the gift of seeing and experiencing what good money management can afford them for years to come.

Remember that teenagers need to learn from their own financial difficulties in order to make better decisions going forward. Dealing with choices, consequences and assuming responsibility to fix mistakes is a critical part of their education.

Positive motivation is key to a positive attitude towards earning money. Guide them in the right direction. Pushing them may lead them to adopt a negative attitude and will undermine their integration into the working world.

Click on the links below to help your teen learn more about the following concepts:

KNOW YOUR TEEN

Before you begin, take a few minutes to review this list of questions. Then share them through discussion with your teen to open the door to a financial management discussion and to help you understand your teenager’s financial knowledge and attitude towards money.

  1. What does money mean to you?
  2. What does it mean to have a lot of money?
  3. How much is a lot?
  4. What is debt?
  5. What happens when you cannot pay back your debt?
  6. What responsibilities come with having a job?
  7. What do you know about interest?
  8. What kind of bank accounts are there?
  9. Where does your spending money come from?
  10. Where do you spend most of your money?
  11. Are you considering university?
  12. Who will be paying for university?
  13. What kind of part time job would you like to get?
  14. What kind of career would you like to pursue?
  15. How much money would you like to earn?
  16. What is a budget?
  17. What is credit?
  18. Have you heard the word investment?
  19. What percentage of money should you save?
  20. Are you saving any money now?
  21. Do you have a goal for your savings?
  22. Does talking about money interest you?
  23. What is good debt and bad debt?
  24. What role does advertising play in how much you spend?
  25. Is it important to start at a young age to save for your retirement?
  26. What does it cost for the “fill in the blank” you want and how long would it take to earn that money through a job?
  27. Are you an impulsive person or do you think things through and plan?
  28. What negative things have you heard about money that concern you?
  29. How can I help you to understand more about managing your money?
  30. Do you know how to make a professional cover letter and resume?

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VALUES

Understanding that desires and needs are very different can be challenging for a teen – but it is key. Showing them how to consider costs by evaluating pricing, adding taxes, service fees and comparing products and quality will teach them what they really have to pay for goods and services and not be misled by advertisements. Considering opportunity costs, what you are giving up now by choosing something else, can help teach your teen to think carefully about financial decisions. Attitudes and perceptions will form the basis for life long consumption patterns so it is imperative to educate and establish these early on. By discussing the cost of a purchase versus the effort in job hours required to obtain the item, teenagers can determine the true value of an item and if the goal is worthwhile. By presenting this concept, your teen will realize that they will always have unlimited desires and needs but the reality is their financial resources or income will be limited, so they need to understand the importance of making good choices as opposed to impulse buying. Share a few examples of purchases made and the cost vs the time it takes to earn that money for them to have a clear picture and understanding.

Once your teen has an income you can start to transfer a small portion of the financial responsibility to them for purchases like treats and luxuries, to help them develop financial management skills, pride and self-esteem. Self-discipline means more effort to obtain what they want through savings, budgeting and planning. Allowing them to make decisions and more purchases will give them opportunity to spend money and see what it feels like to possibly miss out on something they really wanted because of impulse buying rather than planning. Working hard and saving for something of real interest allows the teen to feel proud about the purchase and appreciate its’ value much more.

Teaching how comparison shopping, through television, internet, and flyers before making a purchase can stretch their money further will excite them. Explain that marketing and advertising is a tool companies use to attract teens to make them believe they must have a certain product by emphasizing size, fun and an increase in popularity or even being better than the next person. Teens also need to know that not all internet advertisers can be trusted when they advertise “deals” and they should not respond to an ad that:

  • pop-ups saying you have won something and to collect visit their website and enter personal information
  • mail that says you are a finalist in something they did not enter
  • emails offering deals as this is “junk” mail trying to get you to buy
  • television ads saying you get something for free as you will be asked for a credit card

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BUDGETING

A budget is a tool that helps you to make the best use of your income so you can meet your obligations, needs, goals and ensures you live within your means. It is a monthly record of what income you have coming in and what is spent on in order to keep you on track. Good planning helps teenagers become financially responsible and avoid getting into debt. Some of the key words you will need to know are:

  • Net Income or Disposable Income – is the portion of income you can spend after paying taxes and your regular expenses
  • Fixed Expenses – regular expenses like rent and phone
  • Variable Expenses – regular monthly expenses but the amount changes
  • Incidental Expenses – expenses that don’t come up regularly like medical or gifts

PREPARING A BUDGET & MAKING CHOICES

Another simple but great tool for your teen is a monthly calendar budget. Be sure to enter how much you get paid on your paydays. Then, write down all of your expenses on those specific days so you can make sure you have sufficient money in your bank to cover those expenses as they come due. This can ultimately affect your financial rating when applying for credit, renting your first apartment, getting a home or buying a car. Remember to make sure you have money left at the end of each month to carry you through until you get your next employment cheque. Remember to collect all pay stubs and receipts for purchases and bills you may have to see what your spending is like over the course of the month. Even the variety store purchases and bus trips add up. Calculate your total monthly expenses and deduct if from your total monthly pay to determine if this budget will work for you. If not, you will need to make some adjustments to what you can spend or consider another way to make more money.

Doing a projection budget is a fun way to plan for your future and will also show you the reality of what your income needs to be in order to meet expenses of going to university, moving out on your own, getting that first car or purchasing things you really want to acquire. Try researching the cost of rental housing, car loans, insurance and utilities. Being ahead of your budget needs by saving or getting a better job will help you to live the standard of living you set for yourself and also allow you the privilege of luxuries in the future like special purchases and trips.

Follow the links and share the samples of a Simple Budget, a Budget Activity, a Calendar Budget and a Monthly Income and Expense Statement to help your teen understand how budgeting can assist your teen to understand the importance of tracking their spending and how to save and plan for purchases they wish to make in the near future.

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INTEREST

Interest is the fee charged on borrowed money for you to have the instant access to money you don’t have, like a credit card to pay for a purchase at the mall. Every month you are then required to make a payment towards the purchase you made plus interest the lender charges you if you do not pay the whole amount owing in full. Interest rates can vary up to 29% per year depending on the lender so it is very important to compare lender’s offers before you ever accept any credit card. Many lenders will send offers in the mail so be smart and ask if you do not know whether it is a good offer or not. The money you save in interest can afford you other wants or needs.

An Example of Interest charged due to late payment of your credit card bill:

Amount due:$100
Time on Credit Card:1 month
Annual Interest Rate:29%
Calculation of Interest$100 x 29% = $29.00
$29 / 12 months = $ 2.42
$2.42 x 1 month elapsed = $ 2.42

THEREFORE, the amount that you owe went from $100 to $102.42 because you did not pay the $100 balance before the due date.

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CREDIT

Obtaining Credit means receiving a loan which allows you to obtain goods or services immediately. Using credit also allows you to establish a good credit rating so you can continue to borrow in the future for things like a car or a home. Credit can be a very good thing but can become a huge problem if you do not have income to pay off the debt right away. When debt is not paid, interest is charged on the remaining balance until paid so this can become very costly. You should budget to pay off your credit card balance in full each month. Some debts on credit like a home mortgage are good but debt from a spending spree is not.

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FINANCIAL RESPONSIBILITY

Take the time to guide your teen and discuss financial responsibilities like earning money, preparing a budget, finding a job and income tax. Be positive and encouraging while sharing your experiences and successes. Allow your teen the freedom to make choices, spend their money and also ask them to share in some non-essential purchases to instill responsible spending habits.

Also discuss the importance of managing a budget, not over spending, legal responsibility of loans and credit cards and preparing your yearly income tax. Try not to scare them with stories of collection agencies, legal actions or home repossessions.

Explain the impact tax deduction on a paycheque has on their gross income and the result is their net income. Explain that at the end of the year they will file an Income Tax Return to compare the deductions made from their pay over the year to what the government guidelines say they should have paid. If there is a difference in their favour, they will be reimbursed. Explain also that these tax deductions are used to improve communities with things like roads, parks, hospitals, schools and public transit.

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PART-TIME JOB SEARCH

Take the time to encourage, motivate and guide your teen in their part-time job search. Ensure that the job does not interfere with school or become a burden resulting in a negative attitude. Jobs at this age are limited but babysitting, yard work, and animal care are a few great places to start until they reach the age that they can try things like host, reception, fast food or retail.

Teach job search skills early to prepare them gradually without overwhelming them. The internet is a great place to learn about different job interests. If your teen is interested in working with children encourage them to volunteer at a day camp or nursery school, take a first aid course and babysit. Explain that the more they do in the field of interest they have, the better chance of getting hired when applying for jobs later. Researching will also let your teen know what kind of education and experience they will need to obtain over the next few years.

Before getting a job your teen will need to:

  1. Apply for a Social Insurance Number (SIN) card at http://www.sdc.gc.ca
  2. Learn to promote themselves – focus on interests, skills, marketing themselves and self-confidence skills
  3. Be realistic – at this age it’s not about the amount the teenager earns but rather emphasize the experience they gain, their maturity and responsibility, which will all be reflected in their resume.
  4. Presentation – go in person, ask to speak to a manager or owner, take a quality cover letter and resume. Don’t be shy and ask if they are hiring. Don’t get discouraged if turned down, you will be right for another company.

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PREPARING A COVER LETTER & RESUME

Express the importance of preparing a professional cover letter with appropriate goals, format and content. Aprofessional resume will contain personal information, education, work experience, achievements, interests and references. We will further discuss the set-up and content of for these two documents below.

Cover Letter

A teen’s cover letter should include the following information in this order:

1) Goals:

  1. show interest in the company – research the company
  2. sell themselves – describe briefly their skills and qualities
  3. availability – offer times available to meet to discuss a potential job

2) Format:

Emphasize professionalism and organization when writing the cover letter.

  • no longer than 1 page
  • spellcheck
  • address a specific person with Mr. or Mrs. (call ahead for name)
  • be respectful
  • show enthusiasm about the job being applied for
  • proofread – have someone check grammar

3) Content:

The content should not repeat or expand your resume. Divide your cover letter into 4 paragraphs as follows:

  1. Introduction – mention the position you are interested in, how you heard about the job. A thank you in advance for giving you the opportunity to apply should be mentioned.
  2. Paragraph 2 – mention your qualifications & skills and make a comparison to the requirements of the job available.
  3. Paragraph 3 – mention what you learned about the organization and how it motivated you to want to work for the company.
  4. Closing paragraph – thank the employer for their consideration and

mention your desire to set up a time to meet to discuss the job further.

We have included a sample of a Cover Letter for a Teen to help your child.

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RESUME

A teen resume should be no more than 2 pages, divided into themes, be clear, easy to read and be organized. Themes should follow logical order as follows:

  • Personal Information – name, address, phone number, email address
  • Education – most recent studies first followed by year, name and location
  • Work Experience – skills & qualifications in past jobs and volunteer work and mention specific tasks involved
  • Achievements – this is optional but special extracurricular projects are worth mentioning
  • Interests – list your sports and leisure interests – sports teams tells them you can work on a team
  • References – mention they will be provided upon request (do not include)

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MONEY MANAGEMENT

Banking Services

Share with your teen their options with regard to banking services provided by different banks and compare before choosing a specific bank, see what they offer and get the best service for your teen’s needs. Discuss in branch banking with a teller, ATM, telephone banking and online. Most facilities provide free services when they open a chequing or savings account but remember to inform them of the services charges that apply to ATM banking if they go over their transaction limit or if it is an independently owned machine not associated with the teen’s bank.

Credit Cards

Teens can not apply for credit cards before the age of majority but it is important that you prepare them by discussing the pros and cons of using credit like interest rates, paying on time and in full if possible, and what will happen to their credit rating if they default on payments.

Saving & Investing

Talk to your teens about saving and investing with a goal. Suggest putting aside a monthly savings of 10% of their income and you could offer to match their savings as an incentive to watch their money grow. Inform them of interest earned on their growing money. A couple ways to save would be by encouraging your teen to start investing in an RRSP(Registered Retirement Savings Plan) and a RESP (Registered Education Savings Plan). Have your bank or broker show them how a little investment started now can result in huge savings in years to come.

  • RRSP – is deducted from taxable income now. They may benefit from paying a lower rate of tax on the money when they withdrawal the funds during retirement.
  • RESP – is a government education savings plan to help pay for post-secondary education. There is an annual maximum that can be invested by the person investing. The government will give a grant each year based on their annual limits. Speak to a banker, investment advisor, or the government to find out the annual limits for an RESP.

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CHOOSING A CAREER

Encourage your teen to think about possible career paths as this will not only help them choose courses for high school to meet their education goals but it will also set them up for financial success for years to come. Discuss their interests and abilities, personality traits, and whether they are a team player or more of an independent worker. Make a list of possible occupations that might work for them since they have limited knowledge of the career opportunities available and research preparation needed, education requirements, on the job requirements, work conditions, income potential compared to the cost of living and meeting their wants, needs and desires for the future.

This information will assist them in making practical career choices based on facts. Many are surprised and even disappointed to find out the career they thought would be great really was not what they were looking for or that it did not meet the income projections they had for their future goals. Finding out it can take several more years to re-educate themselves in the right direction can be emotionally frustrating as well as financially frustrating while increasing their debt over time. The more prepared and knowledgeable, the less financial stress and debt they will encounter down the road. Most of all, when dealing with your teen be positive and creative about choices so they feel encouraged and empowered to start their preparation for their future, their success and their financial independence.

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