Setting up teenagers for success through financial empowerment
I’ve been going into the public schools for the past few years teaching teenagers about money. Ever since my children reached their teen years, in talking with other parents, it dawned on me that most of us missed out on learning the basics about money. Interestingly enough, though schools now focus on science and technology, they fall woefully short preparing students for financial independence after high school. In my work helping adults heal their relationship with money, I often hear complaints about how they were never taught to save or the dangers of credit card abuse. In today’s highly competitive and volatile world, I am determined to see this change.
Let’s face it, money is a very touchy subject for most people, often more challenging to talk about than sex.
And like our parents, most of us send our teenagers off to college without any lessons on saving or investing. And though the subject is critical to their success as adults, a discussion about whether to have a credit card, open a retirement account and when to begin a systematic investment plan often lead to yawns and eye-rolling. I am passionate about shifting this pattern and have worked very hard to create engaging, experiential workshops for teens old enough to receive working papers.
Recognizing their built-in resistance, I begin each workshop asking thought-provoking questions. I start by asking them to reflect on their earliest memories of money.
- What did they hear their parents talking about or in some instances, arguing over?
- What does money mean to them?
- Did they grow up feeling like there was never enough, or did they have everything they needed and then some?
Just when I begin to see the wheels turning, I send them into break-out sessions where they share their memories one-on-one. We then come back together for group sharing afterwards and this is when it gets really interesting. It never fails, that as one student shares his personal story, others nod in recognition and often relief. Yet, it’s also fascinating to watch as confusion and bewilderment set in when they listen to overwhelming differences in their peer’s childhood experiences. A few examples of early memories sound like these:
“My brother and I had chores to do for allowance yet there was always an excuse when it came time to get paid.”
“Whenever my mother and father argued, she would run to the mall with me and go on a shopping spree!”
These distinctly different kinds of messages set the stage for teens to examine their own personal belief systems and how their earliest memories influence their present day attitudes about money. By listening to others’ candid reflections, they have a chance to compare their own stories. Once these long held beliefs are identified and understood, they allow for healthier financial foundations and ultimate decisions. After this exercise, teenagers are much more receptive to move onto the basics of Financial Health 101:
WORKING — SAVING — INVESTING
I am a big proponent of teenagers working while in high school. Once they begin earning money, they understand the value in making their hard earned money work for them. I encourage each of them to set aside 25% of their paycheck for long-term investment. Once they’ve accumulated $2500, they can begin investing in no load index funds such as Vanguard, Fidelity or T Rowe Price. I explain that unlike other mutual funds, no load index funds do not have up-front sales charges ranging from 1-5%. In addition, this type of fund offers low operating expenses and diversification so that close to 100% of every dollar invested stays in their account.
We talk about the importance of consistency. I encourage teens to invest on a monthly basis to take advantage of dollar cost averaging. Dollar cost averaging is an investment technique of buying a fixed dollar amount on a regular basis, regardless of the share price. When prices are low, a greater number of shares are purchased despite the drop in value. Then when prices are high, fewer shares are purchased while the value of the underlying investment has risen. It has been proved time and again, that an investor who uses this strategy will outperform someone who tries to time their purchases and sell-offs based on the market’s performance.
AVOIDING CREDIT CARD TRAPS, PITFALLS AND OTHER FISCAL REALITIES
I then conclude our talk with the subject of credit cards. Many adults I work with are unaware of the cost of carrying credit card balances. People assume that if they make the minimum payment each month, they are in good graces with the bank holding the card as well as the credit rating services. I begin by explaining the Rule of 72, a simple formula to determine how long an investment will take to double at a fixed rate of interest. By dividing an interest rate into 72, investors get an idea of the number of years it takes to double their money. With today’s money market accounts paying less than 2%, it would take approximately 36 years for their money to double. Next, I explain that most banks charge upwards of 20% on unpaid credit card balances. When they do the math, they are shocked to learn that banks are doubling their money on unpaid credit card balances every 3.5 years! This discrepancy hits them straight between the eyes. From there, I simply conclude that credit cards are a great tool to build credit when used for purchases only when they have the same amount or more in their bank account to pay the balance in full each month. This approach helps curb impulsive purchases and unconscious spending.
Imagine how different their adult lives could be if every student were required to learn the basics I’ve outline above? Better yet, imagine how different you, the reader’s financial picture would be today had someone explained these concepts when you were a teenager? Don’t we owe it to our children to have candid conversations about money now? Sending our teens out into this consumer driven world without the benefit of a solid financial foundation leaves them susceptible to all kinds of expensive mistakes that could easily be avoided.
The price of anything is the amount of life you exchange for it.
Henry David Thoreau