Here’s an idea: Hand your teenagers hundreds of dollars in one lump sum and leave it up to them to manage the money for the next, say, six to 12 months.
Anyone who’s ever had or been a teenager may quail at the thought, but experts say this approach actually can work much better than a weekly allowance in teaching older kids about personal finance.
“It gives them that all-important experience of managing their money,” says Janet Bodnar, former editor of Kiplinger’s Personal Finance magazine and author of “Raising Money Smart Kids.” ”The key is that kids have responsibility to go along with the money.”
The problem with weekly or even monthly allowances is that the cash simply comes too often. If your kid blows hers, she just has to wait a little while to get more. Less frequent lump sums, on the other hand, can teach teenagers how to plan and save for future expenses — two crucial habits they’ll need to get ahead financially.
Adults who plan ahead for large, irregular expenses are 10 times more likely to be financially healthy than those who don’t, according to a study by the nonprofit Center for Financial Services Innovation. Those who have a regular savings habit are four times more likely to be financially healthy.
Lump sums can teach teens the skills needed to develop those habits, says Ron Lieber, a personal finance columnist for The New York Times and author of the book “The Opposite of Spoiled.”
Lump sums “train and test teens in self-restraint, in anticipating medium-term needs, in telling the difference between wants and needs, and in setting goals and priorities,” Lieber says. “If you don’t have more money coming for a while but a larger-than-usual pile in front of you, there will just be that many more and bigger tests of your…