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Wednesday, May 10th, 2006

Kristen DiPaolo | CWK Producer

Vanessa Ceci, 17, works part time at a tanning salon. She says her paycheck belongs to her, and not her parents.

“They shouldn’t be too involved,” says Vanessa, “because it’s my money that I’m spending. Like, I’m working for it.”

“There are times that she’ll come home with a new purse,” says Vanessa’s mom Dianna, “or some more shoes that she doesn’t need - and we kind of get upset.”

Should parents decide how kids spend their money?

“It’s a good thing for parents to say, ‘You’ve got money coming in — these are the things that I would do if I were in your shoes,’” says Todd Mark with the Consumer Credit Counseling Service. “Not necessarily force them to, but strongly encourage them to.”

And, Mark says, one thing parents should strongly encourage in their children is saving.

“We know that the savings rate in our country is atrocious,” he says. “As a matter of fact, last year was the first time since the Great Depression that we had a negative savings rate as a country. So, as adults that have obviously very little value on savings, we’re not passing it on to our kids— to put much aside in savings - either.”

Vanessa says she now saves most of her paycheck — because that’s what her mom taught her to do.

“I like saving,” she says. “It makes me feel good knowing that I have money in my savings account. When I talk to some people they are, like, ‘Oh, I only have, like, 50 dollars!’ I’m like, ‘Wow! I have a lot more than that!’ So it just feels good because, like, in the future, I’ll be set up a little better than most people.”

And experts say that if you can afford it, encourage kids to save with a cash reward.

“Many parents really go the extra mile to encourage this by doing just as employers do with a 401(k),” says Mark. “And [they] say, ‘You are going to put 10 percent aside - we’ll match you dollar for dollar.’”

But, he says, for kids to learn the value of money parents should allow them to spend part of their paycheck any way they choose.

“Before, like, when I didn’t have a job,” says Vanessa, “when I wanted something, I was like, ‘Oh, okay - swipe the credit card and, like, Mom and Dad will pay for it.’ But once it’s my own money and I’m spending it, I look at a sweater and I’m like, ‘Wow, that’s really way too expensive. I have to work like eight hours for this!’”

Tips for Parents

• Do not mistakenly believe that your child will learn to budget money in high school. Many schools do not offer courses in personal finance. (Financial Literacy and Education Commission)
• Do not wait until your child gets a job to start lessons about being a smart consumer. Parents can talk to kids about comparison-shopping, delayed gratification, and prioritizing purchases even before elementary school. (Todd Mark, Spokesperson, Consumer Credit Counseling Service)
• Parents should model smart financial behavior. If parents overspend or are late with credit card payments, kids will think, ‘Mom and Dad do it. It must be okay for me to do it, too.’ (Todd Mark, Spokesperson, Consumer Credit Counseling Services)
• Discuss your financial values with your children. Suggest ways teens can cut back on expenses or increase the amount of money they earn. (The American Institute of Certified Public Accountants)
• Strongly encourage kids to save a portion of their income, and put savings goals in writing. The ideal savings rate will vary depending upon the child’s financial situation. A good amount to save would be five to 15 percent of the child’s income. In some cases, it makes sense for the child to save as much as half of their paycheck. (Todd Mark, Spokesperson, Consumer Credit Counseling Service)
• Asking kids to save most or all of their paycheck can sabotage the most important financial lesson teens can learn from a first job: how far the dollar can stretch, or how quickly it can evaporate with a few bad decisions. (Todd Mark, Spokesperson, Consumer Credit Counseling Service)
• Don’t be upset if children make mistakes with their money. Mistakes are part of the learning process. (Paul Lermitte, Financial Planner, Author)
• Parents should not stop paying for things they have always provided when a child starts earning a paycheck. For example, if parents bought back-to-school clothes before their child had a job they should continue to do so afterwards. Otherwise, the child will not have an incentive to work. (Todd Mark, Spokesperson, Consumer Credit Counseling Service)
• It's perfectly fair for parents to ask teens to pay for things that are new to the family budget - such as a car, auto insurance, or gas. (Todd Mark, Spokesperson, Consumer Credit Counseling Service)
• If teens are getting a job to have money for a car, parents can take the opportunity to teach them about making a smart automobile purchase. (Todd Mark, Consumer Credit Counseling Service)
• When teens get a first job, parents may want to consider co-signing a credit card. This gives parents the opportunity to explain the basics of a credit card, stress the importance of paying bills on time - and help the child build good credit before graduating high school. (The American Institute of Certified Public Accountants)
• Parents who co-sign for a teen’s credit card can set a low limit. That way if the teen makes a mistake, the bills will not get out of control. Have the lender agree in writing to notify you if the child misses a payment. (Federal Trade Commission.)
• Consider asking your teen to put part of his or her paycheck aside for retirement. Money that teens put into a Roth IRA between the ages of 16 and 21 can experience dramatic gains by retirement. (Todd Mark, Spokesperson, Consumer Credit Counseling Service)

References

• Todd Mark, Spokesperson, Consumer Credit Counseling Service
• Financial Literacy and Education Commission
• The American Institute of Certified Public Accountants

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