One of the downsides of divorce is the Disneyland Dad. It is a tempting and enjoyable way (for some) to spend "your weekends" with the kids, trying to make up for lost time with fun and games, with devastating consequences down the road. Sugarcoating your time together is as dangerous to your child's fiscal health as candy for breakfast is to their physical fitness. With too much chips and candy, you end up with an obese child; with weekend Fanstasyland, you create an insatiable teen, who comes to regard you primarily as the ATM machine.
So, how do you trim back the fluff and promote better habits, while still having fun?
This article is focused on teaching your teen great money habits, however all of the strategies can (and should) begin much earlier. Essentially, you want your child to understand the value of money, and also to know deep down that the best things in life are free. Earning an allowance is far better than doling out the dough whenever she whines for a new toy. (You'll be surprised how good at math your grade-schooler becomes when she is buying her own toys.) By the time your child becomes a teen, if she has graduated to budgeting for her clothes, shampoo, recreation, after school snacks, etc. on her own, she is prepared to make great choices in college, when the credit card companies start recruiting her.
Imagine what a leg up your teen has on the world, if fiscal fitness is a daily habit.
Here are six easy steps to create a financially responsible teen.
1. Income: Treat any allowance your teen receives (from you and your ex) as income (i.e. tasks and chores the teen must do to earn it), and, just like an employer, put 10% of the "income" (allowance) into a brokerage account for your teen. Explain the power of investing, so that they understand they are already creating their future. Have your teen assign goals as names to the account, such as Trip to Europe Stash, College Fund or Buy My First Home Account. You'll need a name for each fund anyway! Teach your teen the astonishing facts that if you save 10% and that earns a 10% return (what stocks and bonds have done over the past 30 years), your nest egg will be bigger than your annual salary in seven years and it will earn more than you do within 25 years. If you start at 20, you can retire at 45. Possible accounts to consider opening include a Dependent IRA (if your teen is working and earning money on a 1099 or W-2 basis), a custodial brokerage account or a college fund.
2. Investing: Encourage friends and family to contribute to the college fund and/or brokerage account instead of just giving cash gifts to your teen on birthdays and holidays. Also, encourage your teen to deposit 10% or more of any gifts she receives into the fund. Finally, discuss which investments your teen would like to own. Your teen will be far more "invested" in this account if some of the companies she invests in are near and dear to her heart. And having an investment means that your teen will become more interested in improving the return by learning more, as you and your ex will, too, as you work together to achieve better results.
3. Charity: Many religious organizations ask teens to give 10% of their allowance to them, a habit that sticks with them into adulthood. Charity really empowers the individual who gives by creating a network of like-minded friends who can support one another in all kinds of for-profit endeavors. So do not underestimate the power and message of helping others with time, talent and money. In addition to supporting the teen's favorite charity (or church), consider taking at least one day each year to volunteer with your teen. You'll be surprised how much fun this can be, and it is the perfect anti-dote to the Disneyland Dad (or Mom).
4. Education: 10% of any teen allowance/income should also be going into a college fund. If your ex is contributing to a college fund, include your teen in that monthly deposit. Remind your teen that education is the highest correlating factor with income, and that if she wants to enjoy the freedoms of earning a good salary, getting a great education is the first step! This is far more valuable than just having the college money appear magically when the move into the dorm occurs. And if the teen is invested in going to college (or trade school), her grades will improve as well.
5. Fun: A sustainable amount of "fun" in any budget should be around 20%. This is easy to calculate -- $2 of every $10 earned. If the Trip to Europe Fund, charity and education dollars are being deposited on auto-pilot, that's the best assurance that all of the allowance will not be thrown away on retail therapy. Also, do fun things on a regular basis with your teen that are free or cost very little. A pickup game of soccer at the local park. Picnics. Go to the museum on the free day. Host a friends and family potluck night (and include your ex, if it feels right).
6. Basic Needs: Most teens, and even college students, have their big-ticket basic needs (housing, food, insurance) taken care of. However, why not make your teen responsible for her personal items, like shampoo, new clothes (beyond the back to school shopping trip), movies, games and snacks? This teaches the teen to search for bargains to stretch the value of their own dollar.
Depositing into the brokerage accounts and monitoring the investment returns is fun and easy to do online. Essentially, you set it up once and then everything happens automatically. Consider taking a few hours out 1-3 times a year to evaluate the investments and returns with your teen.
The Thrive Budget that I've outlined above is a great way to teach your kids healthy money habits, where the focus is on building a better life, rather than just struggling to survive (paying bills and spending, spending, spending every dime you earn). The sooner you start and the more committed you are to this plan, the more it becomes the way life is for your teen. And since the Thrive Budget is a solid foundation upon which your teen will eventually build a new career, family and life, you will be giving yourself, and your ex, a gift as well. You're less likely to join the ranks of divorced parents who have a 26-year-old still living at home!
To read about the Thrive Budget in greater detail, play the Billionaire Game in chapter 8 of You Vs. Wall Street.
About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street. She is a repeat guest on Fox News, CNBC, ABC-TV and a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. As a philanthropist, she has helped to raise more than two million for Los Angeles public schools and financial literacy. Follow her on Facebook.com/NWPace and on YouTube.com/NataliePaceDOTCOM. For more information please visit NataliePace.com.