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Helping Your Teen Make Smart Spending Decisions

October 6, 2020


Liz Frazier

Parents of teens have been hearing “I want that!” or “Can you buy me that?” since their child was able to talk. When kids are younger, parents are the ones making the purchasing decisions and prioritizing what will be bought for their kids. Now it’s their turn. One of the most important financial skills a teen can learn is responsible spending, and this comes from learning how to prioritize and make good decisions.

Before they can do anything, your teen must have a strong understanding of needs versus wants - this is the cornerstone of all spending decisions and budgets. Simply put, needs are things that are essential, or important to your survival. Wants are things that are nice to have, but you can live without. This concept seems pretty straightforward, but it’s not always clear cut. Water and food are clearly needs. An XBox is never a matter how much they insist it is. But what about a car? They need to get to school and work, so a car could be considered a need. Begin having these conversations with your teen by simply pointing out items that they need vs want. This leads to setting some financial expectations about what you expect your child to buy with their own money. Tell your child that while they are living with you, you will always buy them anything that is a need, such as food, their home and clothes, but they have to buy the things they want with their own money. The goal is for them to get into the habit of asking themselves, “Do I really need this, or do I just want it?” This is a valuable skill and can curb impulse buys and overspending. This will become critical once they start learning about budgets and making decisions on how to spend and save their hard-earned money. They should understand that while it’s okay to spend money on things you want, need items should always come first.

Through learning needs versus wants your teen has been learning how to prioritize, even if they don’t realize it. A simple way to explain priorities to your teen is to ask them what is really important to them. Maybe you are one of the lucky and rare parents where your teen will tell you that their family is most important. More than likely, they list things like their friend Sam, their bike and phone. Tell them that these are their priorities, which means these are the things that are most important to them. Explain to them that a need is always more important than a want, so it’s a priority. Understanding and being able to define their priorities is key to decision making and smart spending.

Decision making is a skill your teen uses all day long. Many of their decisions are small and set on autopilot, like deciding to put their shoes on in the morning. Others are larger decisions and may require some thought, like which friend to hang out with on the weekend. Start pointing out when your teen is making a decision or compliment them when they make a well thought out decision, even if it’s small.

With these tools, your teen (and the parent!) is equipped to make smart spending decisions. Here are some talking points when your teen wants to make a large purchase:

  1. Stop and identify the decision: Because teens can be impulsive and excitable, they may not even realize they are making a decision. So the first step is to encourage your teen to slow down and recognize that there is a decision that needs to be made. “Bella, I get that you really want this bike. Before you make the decision to buy it, let’s stop and think about it for a minute, just to make sure you’ll be happy with your decision.” By acknowledging that they have a decision to make, it not only slows them down, but also lets them know that this is their decision and gives them a feeling of control.
  2. List out the options: Make sure your teen understands that any time they make a decision, they are choosing one option over the others. Ask your teen what their options are and discuss the possible opportunity costs (what else they could do with that money).  Ask Bella what her choices are in this decision. Help her see that there may be other options, such as saving her money for something later. Another option could be waiting a day, and if she still really wants it she can then come back and buy it.
  3. Evaluate the options: Walk your teen through the pros and cons of each option. This is the time to ask questions, such as “Why do you want this?” and “What are you going to do with it?” “Bella, it seems like your options are to 1) buy this bike now, 2) wait a day before buying it, 3) buy something else, or 4) save your money for later. Let’s think about each option.” Be sure to make it known that this is their decision.
  4. Make the choice, then analyze: Ask your teen what their decision is, then bite your tongue and roll with it. Letting your teen make their own decisions is critical to their growth. When they make a good decision, they get the fulfillment and confidence that comes from it because they chose it. When your teen makes a bad decision, they will feel the consequence but will learn from it and make better decisions in the future. Later, discuss with your child if they are happy with their decision, and what they wished they did differently.

Depending on type and size of the decision, the decision process could take a total of two minutes or two weeks. More than likely, your teen is already conducting some version of this process already with every decision. All you need to do is help them stretch out the process and think it through.

The best way to teach teens smart spending and good decisions is through practice. Let them make their own decisions early and often. Again, allow them to make mistakes because that’s how they will learn.


Liz Frazier

Liz Frazier is the Executive Director of Financial Education at Copper and author of “Beyond Piggy Banks and Lemonade Stands: How To Teach Young Kids About Finance”. Liz is a Certified Financial Planner specializing in financial planning for families and working professionals. Her goal is to alleviate the anxiety that surrounds finance, and make financial education, resources and tools accessible to all.

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