Teaching Kids to be Wise Spenders

Have you ever tried to get a young person to do something they aren’t interested in?

It can be a frustrating experience for everyone. Young people are often told (typically by their parents) they need to be smart with their money and save for some big event in the future, maybe college, a car or just a future purchase. Basically, parents saying “no you can’t spend it all” or “no you can’t buy that” isn’t always very effective. Many of us don’t like to be told we can’t do something. A better approach is to shift the focus away from “no” and toward an alternative. This should help get more buy-in from a young person.

First, keep the focus on money that will be spent now or in the near future. If 10% of money is saved, then 90% can be spent. Teaching how to get the most out of the 90% is much more fun and engaging than focusing on the 10% being set aside.

Second, have a discussion about priorities. What things are really important? Many young people will prioritize friends and things that make them fit in with friends (clothes, phones, music, cars, etc.). Entertainment is also likely to rank high on the priority list. Probing a bit about why they value particular things can help them, and you, understand their values and priorities. Keep

in mind that a young person will value things differently than an adult. If it’s hard to remember this, think back to where your money went when you were in high school. Considering priorities is a great starting point for a spending plan. The goal isn’t to convince the world that only one person’s priorities are correct.

Third, a discussion about needs versus wants is important. In the adult world, we might want a vacation but we need to pay the utility bill. In the non-adult world, needs may be more limited, but there may still be some items that are closer to needs than others. Getting a burger at a fast food restaurant might be a clear want, while paying for gas to get to work or school is a lot closer to a need. Grouping some of these expenses or potential expenses can be helpful when prioritizing spending.

Finally, discuss the pros and cons of choices being made. Some choices are clearly a pro or con, while others have room for debate. The important thing is the process of making a choice (or proposing to do something) and evaluating the potential outcomes. Teaching money decision-making skills can lead to good choices.

A tip to keep kids motivated to regularly dedicate some money toward a big purchase, such as college, is to have some shorter-term goals as part of the ultimate goal. For example, if the ultimate goal is to save $10,000 to buy a car in three years, don’t set that singular goal. Break the goal into several parts (such as save $2,500 by the end of year one, $6,000 by the end of year two, and then the full $10,000 by the end of the third year). Structuring a goal in this way will let the saver celebrate their success of meeting the first year goal and hopefully stay motivated to stay on track for the year two goal. This same process could be used with monthly savings goals building up to an end-of-summer overall goal. The gratification of meeting a mini-goal will increase the chances of meeting the overall goal.

Teaching young people to be good money managers can be accomplished, but if we simply tell them “no spending” then it doesn’t allow the young person a chance to learn the process. Even if they have failures in spending wisely as a young person, they are probably less costly than if they make that same mistake 5 or 10 years down the road. Learning from small mistakes as a young person and having some discussions about money are great ways to develop better financial habits as an adult. �

Want to encourage your teen to learn about money and saving?

by Marsha Goetting, Ph.D., CFP®, CFCS MSU Extension Family Economics Specialist

Encourage him/her to Get Smart About Money. The National Endowment for Financial Education (NEFE) has several courses. You can start with Money Basics or choose My Earning Plan, My Emergency Fund Plan or My Financial Well-Being Plan, among others. https://www.smartaboutmoney.org/

The United States Mint has fun for kids and tips for teens with fact sheets on savings, a savings calculator, the 5 Step Save/ Spend Plan, When Will You be a Millionaire, and more. http:// www.themint.org/teens/saving-tricks.html

Research shows that those with a savings plan are more likely to spend less than they earn and save the difference than those without a plan. The American Saves for Youth savings initiative provides an opportunity for parents to motivate, communicate and encourage youth to take action. https://americasaves.org/ learn-more-about-us/2-uncategorised/1129-america-saves-foryouth-savings-2

The MSU Extension Track’n Your Savings Goals register shows youth how to track progress towards achieving specific savings goals – all in one place. At any point in time they can see the amount they have accumulated towards each goal. It’s designed for those who want a simple way to track their savings without having to spend a lot of time and hassle doing it. Special savings registers and a MontGuide are made available at no charge for Montana residents through gifts from the First Interstate BancSystem Foundation and the Montana Credit Unions for

Community Development, now known as Montana’s Credit Unions.

MontGuide http://msuextension.org/publications/ FamilyFinancialManagement/MT200303HR.pdf

Register https://store.msuextension.org/Products/Trackn- Your-Savings-Register__EB0164.aspx