Ten Ways to Talk With Your Teens About Money

You may know that you should discuss money with your teens, but you may not know how. Here are ten aspects of financial management that you and your teens should discuss:

1. Budgeting. Help your teen construct a simple budget that tracks income and expenses, so they can see where their money goes and how much they can save.
2. Saving to meet goals. Discuss your teen's short- and long-term goals - whether a computer game and clothes, or a car and a college education. If saving has been a problem, go through the budget to see where spending could be tightened.
3. How to save and invest. Because of inflation, the money your teen saves today may not buy as much in the future. That's why earning interest is important. Some teens don't grasp this concept. In the survey, almost 67 percent of teens surveyed said checking or savings accounts was the best vehicle for saving money. Yet 13 percent said saving with a piggy bank - a method that doesn't earn a dime of interest - was the best way.
4. Earning money. If your child's expenses exceed income, or if he or she has significant long-term goals, talk about ways to increase income. While you don't want jobs to negatively affect your child's school work, many teens can handle both responsibilities. In our survey, 72 percent of teens reported doing odd jobs to earn money and 34 percent of older teens said they had a full or part-time job.
5. Taxes and inflation. When teens get their first paycheck, they are often shocked at their take-home pay. Using their pay stub, talk about the taxes that are taken out of their pay. Extend the discussion to show how inflation can have a depleting effect on income over time.
6. The wise use of credit. Every year, our survey finds a widespread lack of knowledge about credit cards - this year, 68 percent said they have never discussed using credit cards responsibly with their parents. Discuss choosing a card with the lowest interest rate and paying the balance in full each month on time to avoid interest and late fees.
7. Buying and maintaining a car. Thirty percent of teens in the survey who said they were saving said they were saving to buy a car. But often teens don't understand the financial impact of a car. Discuss buying a used car versus a new one; leasing or buying; the effect of an auto loan's interest expenses on total cost; and insurance, maintenance, and fuel costs.
8. Paying for college. In our survey, 42 percent of those saving said a college education was a goal. But fewer teens this year (26 percent vs. 33 percent) reported frequently discussing saving for a college education with their family. Decide whether your teen will pay for any part of tuition and room and board, books and supplies, clothes, a car or other transportation and living expenses, and then help your teen budget.
9. Living on your own. Help your teens prepare for living on their own by discussing anticipated monthly expenses, including rent and utilities, telephone, cable and Internet access, food, household supplies and laundry costs, transportation, and renter's and auto insurance. Don't forget to include security deposits, utility deposits, telephone or cable hookup charges, and moving expenses. Create a household budget to see whether your teens can expect to earn enough to live as they would like, or whether they need to share living expenses with others, or even wait awhile.
10. Entrepreneurial pursuits. Your teen's entrepreneurial bent is worth encouraging. Whether they want to create their own business now, or dream of working for themselves once they enter the adult work force, discuss ways to work toward this goal.

- Euna Kwon is Manager of Education Services for Merrill Lynch's Private Client Group.