by Christine Masssie

Created on: July 10, 2009

Exercising good financial discipline early in life creates benefits that can last a lifetime. On the other hand, foolish decisions and carelessness can create problems that can take years to unravel. In this day and age of instant gratification, trying to convince your teen to consider the long term effects of their financial decisions is not an easy task, but one that every responsible parent needs to address.

As with almost everything, kids learn what they know by watching their parents. Before you start accusing your child of being irresponsible with their spending, a good hard review of your own spending patterns would be helpful exercise. Do you have a monthly budget that breaks down your obligatory and discretionary income? Do you have a long term and emergency savings fund? Do you know what your credit report looks like? Before you try to explain to your teens how they should build their financial house, you should make sure yours is in order.

When you are ready to talk to your teen about their spending, a good place to start is with a basic budget. What kind of income is available to your teenager and where is that money generated from? Take into account everything, money from a part-time job, money they receive from you to buy clothes, shoes, ect. and extraneous sources such as birthday gifts or extra money they may occasionally earn from doing an occasional extra chore or job. Before they pay anyone else, instill in them that they need to pay themselves first. Not a spending or discretionary fund, but a long term and emergency savings fund. If at all possible they should put away at least 10% of their cash before they even consider spending. Saving for emergencies and for goals sets them up for a lifetime of valuing both their hard work and the time it takes to amass money. Next, have them write out all the absolute expenses they may have; car or insurance payments, school expenses, gas money, and any old debts that they are now obligated to. After all the obligations are met, have them figure out a monthly discretionary fund. I predict the discussion around necessity and discretionary spending should be a lively one!

After agreeing upon a budget; you should plan to sit down once a month with your teen to review how the plan is working or not working and adjust it. People in general, and teens in particular, don't plan enough for the unexpected expenses such as a car repair or lost cell phone. Doing without a car or phone for a month while you try to get the money together can teach a lesson that all the talk in the world can't convey.

Stick to your guns parents! While you should build in set reviews for plan revisions and not be completely inflexible, demonstrating on a small scale the follies of financial irresponsibility now can instill lessons that ensure a confident and solid financial future.

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