MMM Newsletter and Website Header 10.2.15

By Carrie Schwab-Pomerantz, President, Charles Schwab Foundation

Key points

  • Kids want to learn about money management, but only 17 states require a financial literacy class to graduate.

  • Parents can fill the gap by giving teens real-life money experiences and responsibilities.

  • Being a good role model and sharing your own money management practices is one of the best ways to prepare your teen for life after graduation.

As your child heads back to school, you’re probably looking at class choices and schedules, maybe even beginning a college search. But unless you’re lucky enough to live in one of the 17 states that require completion of a financial education course prior to high school graduation, there may be one area that’s sorely lacking in your teen’s education: money management.

That may not seem like the most exciting topic, but here’s a stat that should get everyone’s attention: Teens spend nearly $260 billion annually! With so little financial education available, that means teens do a lot of spending (and probably borrowing) without understanding the basics of how to manage money or the consequences of mismanaging it…

The good news — kids want to learn

The good news is that, according to a 2011 Schwab Teens & Money Survey, 86 percent of teens would rather learn about money management in class before making mistakes in the real world. Even better news is that, based on results from the Money Matters: Make It Count program offered through Boys & Girls Clubs of America (BCGA), kids show dramatic improvement in their understanding of personal finance concepts after participating in the program. And most important of all, a study of more than 1,600 teens who completed the program showed that 17 percent switched from being spenders to being savers, and 23 percent were sticking to a budget.

This corroborates my own personal experience working with Money Matters and BGCA. Now in its 13th year, with nearly three-quarters of a million teens having completed the program, Money Matters has shown some remarkable results. Part of those results are derived from BGCA’s efforts to make the program relevant to teens through a wide range of experiential activities and content. I’m particularly excited about two new elements of the program — Reality Store, a real-world interactive workshop, and a digital game called $ky — where kids discover firsthand how education, career, family and spending can impact their financial futures. There’s nothing like experiential activities to give kids a taste of financial reality.

But regardless of whether a class or program is available, I believe it’s up to parents to fill in the gaps in a young person’s financial education. Here are some ideas on how to introduce your own kids to today’s financial realities.

Teen finances: Five practical ways to get started

As parents, we can always do a better job of communicating conceptual information, but real learning comes from doing. So instead of just talking about money, try teaching your kids through hands-on money experiences and responsibilities.

1. Use daily opportunities as “teachable moments”

For instance, when you’re paying bills, let your teen see what it costs to run a household, and how bills get paid and a checkbook balanced. If you pay your bills online, show them how it’s done — and how online bill-pay is linked to your checking account.

2. Pay an allowance only once a month

To learn how to budget and make their money last, teens have to have their own money, whether it’s through an allowance or earnings from a part-time job. Help them understand the difference between needs and wants and how to budget for both. Make them responsible for a certain share of their own expenses (for example, clothing, a new electronic gadget, or extra-curricular activities). Most of all, let them learn from their mistakes. Don’t immediately come to the rescue if they come up short.

3. Open a checking account

Show your teen how to use a check register and review monthly statements online or on paper. Guide them in using a debit card wisely and keeping track of debit expenditures. Show them how to use an ATM machine for deposits and withdrawals.

4. Help make savings a habit

Help your teen open a savings account. Talk about goals and setting savings priorities. Suggest saving a percentage of any earnings or gifts toward a goal. If your teen has a job, have them set up a direct deposit to their checking account that links to their savings account. Consider matching a portion of their savings to further motivate them to put money away.

5. Show them your 401(k) or IRA statement

Explain what a 401(k) plan is and how it works. Kids aren’t thinking about retirement yet, but they should be once they get their first job. Introduce the idea of saving and investing 10 percent of their salary toward retirement by opening up a Roth IRA from the get-go. A savings calculator is a great way to demonstrate how painless it is to start accumulating a really nice nest egg if you start early.

Other topics teens want to know about

With a solid foundation in the basics, you can add more sophisticated topics. The Teens & Money Survey found that kids are particularly interested in things such as the kinds of insurance they’ll need when they’re on their own, how to invest to make money grow, how income taxes work, and how to establish good credit. It’s definitely encouraging to see that the interest is there. Now it’s up to us to help turn that interest into practical experience.

Teen finances – be a good role model

Our kids are watching us and looking to us for guidance. The more we can share with them about our own money management practices — from household budgeting to saving to investing — the better for everyone. So be open and talk freely about how you handle your money and teach them by your good example.

But don’t let the schools off the hook. If a financial literacy class isn’t on the schedule at your teen’s school, you might petition your school district to have one added to the curriculum. To me, money management is a critical life skill for everyone. And the sooner it’s learned, the better.


About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC’s) Monday Morning Minute is crafted to provide decision-maker’s with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

Additional Important Disclosures
The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, Charles Schwab & Co., Inc., offers investment services and products, including Schwab brokerage accounts. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides deposit and lending services and products. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.