It can be tough to know how much (or little) information to share with your kids when it come to what you can and cannot afford. A survey by Charles Schwab found that 93 percent of parents with teens worry their kids could make major financial mistakes. For answers to the toughest questions, we turned to some of the smartest financial advisers around.
Q. My daughter is spending way too much of her weekly allowance at the mall. Should I intervene?
A. "Let her experience the consequences," says Carrie Schwab-Pomerantz, chief strategist of consumer education for Charles Schwab. If she has no money left at the end of the month to go to movies with friends, she'll learn the value of saving for the future. Still, make sure your daughter doesn't spend every last dime. Many experts recommend that kids save about 10 percent of their income or allowance. "I'd make saving a requirement," Schwab-Pomerantz says. "You want it to be in her DNA that money is always set aside for the long term."
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Q. What if your tween asks, "How much money do we have?"
A. If your child wants to know your salary, you can satisfy her curiosity without getting into dollars and cents, says Janet Bodnar, author of Raising Money Smart Kids. If your finances are fine, she suggests saying, "We have enough to be comfortable and some to give away to people who aren't as fortunate as we are." But if your money situation is a mess, radio talk show host Clark Howard, coauthor of Clark Smart Parents, Clark Smart Kids, offers these guidelines:
- 12 and under: "Don't tell them you're having trouble paying bills," says Howard. "It could foster a deep sense of insecurity. Their real issue is 'Are we OK?' Younger kids just need to know there's going to be food on the table and a roof over their heads."
- 13 and over: Tell your teen frankly that you're having financial troubles, and outline the steps you're taking to improve the situation. You might suggest ways he can help out, such as getting a part-time job.
A. Have a candid conversation. On paper, write down each school he's considering and the costs, plus what you can contribute. When he sees the numbers, it'll be easier for him to process the information. If you can't afford any school he's interested in, "tell him you want to support his aspirations, and then help him find out about scholarships and financial aid," says Jack Canfield, coauthor of the book Success Principles for Teens. If he wants to take out a loan for his dream school, make sure he realizes he'll be paying it off years after graduation.
Q. Your teenager is asking for her own car. Who pays for it and gas, insurance, and maintenance?
A. "Buying your teen a car shouldn't be a given," says Bodnar. "I prefer giving a child the use of the family car, because insurance will cost less and you have more control over how your teen uses it."
If she really needs her own car, she should help pay for it, if possible. "You take care of maintenance on the big things, like tires. But put your son or daughter in charge of all the discretionary expenses, like gas," Bodnar says. Kids are less likely to drive recklessly if they're responsible for part of the car costs, because their own money will be on the line. If your child has no savings, insist she get a part-time job to pay for at least some of the cost of gas, insurance, and maintenance.Q. Your son wants a $130 pair of sneakers. Should you buy the shoes even though it's more than you think you should spend?
A. No. "We had a $50 sneaker rule with our kids once they hit their tweens," says Bodnar. "If they wanted something more expensive, they had to pony up the balance with their own money." This approach also teaches your child to save for a coveted item.
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Q. Should I give my teen a debit or credit card?
A. Not until high school. Try this plastic progression:
- Middle school: No credit or debit cards. These kids are too young to handle them.
- High school: If your child has savings from a summer or part-time job, first give her a plain ATM card for her savings account. "She won't be able to buy with it, but can deposit earnings or withdraw cash," says Bodnar. Once she shows responsibility managing money, get her a debit card tied to a checking account. She'll probably use the card conservatively, knowing that purchases will shrink the amount in her account. If she doesn't, cancel the card.
If your high schooler seems mature enough to deal with credit, a year or two before college, get her a card with a low limit of $200, says Howard. Then, coach her on debt management so she learns the need for paying off statements on time.
Should teens have debit or credit cards? How should you explain the family budget with your teen? Find the answers here.
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Reprinted with permission of Hearst Communications, Inc.