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Teens and Money

November 2, 2007

By: Jim Oosterman
Melrose Bank

We live in a materialistic society, and raising teenagers is a tough enough job without money issues. The older teens become, the more expensive the things they want – or think they need, get. That's why teaching children how to manage money from the time they're young can have its advantages and may avoid big battles down the road.

Working hard for the money
If you give your child an allowance, you can choose to either continue that or stop when he or she is old enough to get a part time job. At that point, it's the paycheck, which is probably a lot more substantial than the allowance you dole out, that you'll want to be sure to focus on in any lessons on personal finance.

Having a job gives teenagers a lot responsibility and independence. They also learn quickly how taxes reduce their take-home pay and how many hours of work it takes to buy a car, a new outfit or something else they want. All those calculations might make them eager to work as much as they can to earn as much money as they can. But school and homework should be the first priority, so parents should put a limit – about 10 to 20 hours a week – on outside work.

Manage bank accounts wisely
Teenagers with a steady paycheck, and especially college students, should have a checking account. Help your teen shop for an account with the smallest balance requirement and the lowest service charge. Your bank or credit union might also offer special plans for teens. Teach your child how to balance his checkbook every month, and make sure he understands about the fees for bounced checks and how to report a lost checkbook or debit card.

If your child doesn't already have one, set up a savings account too, and discuss how much money should be deposited into it from every paycheck. If the habit of putting money into savings is established early, then it will be more likely to become a lifelong way of managing money.

After a while, you might want to consider seeking some financial advice for your child to invest some of what he's earned. There are many long-term investment options appropriate for young investors. When it comes to investing, teens have a huge advantage over their parents: time. The magic of compounding is dramatic when you start saving young.

Set up a spending plan and budget
Be sure to set the guidelines on what you expect your teenager to pay for out of his own money. Some parents will treat their kids to lunch or a movie when they're together, but they have to pay when they go out with their friends. Maybe the parents take care of the car payments the teenager drives, but he buys the gas and contributes to the insurance premiums.

With their own money, teenagers can also become more responsible for buying some of their own clothes and other necessities. It will help them appreciate how much things cost and perhaps take better care of their belongings. Parents might find that the rules that applied for the allowance their kids received at a younger age still work for any income they receive; it's just the expenses that have changed and, in most cases, increased!

Keeping an expense log will help kids – and you – see exactly where their money goes. Review the log on a weekly basis and talk about whether they're wasting money or being reasonable about spending and saving.

Credit card caution
Older teenagers will receive a steady flow of credit card offers in the mail, and yet they know very little about how the cards work. Here are the major points you should make very clear to your teen:

  • Every time you make a purchase with a credit card, you are taking out a loan.
  • There is a high price for this loan; it's called interest. If you make minimum payments, you will take almost eight years to repay a $1,000 purchase on a card charging 18 percent interest.
  • The only way to avoid interest is to pay the full balance each month. You should always strive to do that.
  • One credit card is enough.
    If you'd like to give your teenager a credit card, start off with a debit card on his checking account or a second card on your own account. If he does accumulate a balance, supervise closely to be sure that he is paying it off as quickly as possible.

The road to adulthood
Some parenting experts warn against making your teenagers completely independent, but they should be close to being able to take care of themselves and managing their own money. Teaching teens about money is really about preparing them to be responsible, self-reliant adults.

James Oosterman is the Vice President of Melrose Bank. He can be reached by telephone 781-665-2500, online at or on Facebook at

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