Teaching Teens Financial Responsibility: What Should They Have to Pay For?

The annual cost for the average couple to raise a 14-year-old in 2012 was $17,730, according to the USDA’s Center for Nutrition Policy and Promotion. It cost $18,380 to raise a 17-year old that same year, and in a house with two teenagers and a 12-year-old, the annual cost to raise all three children rose to $33,590. How much of this financial load should teenagers be asked to bear? If you’re raising one or more teens old enough to work or drive, you might be wondering which expenses they should start paying for themselves. Here’s a guide to get you started.

Build on Your Budget

Approach your children’s budget as a reflection of your overall household budget. Financial advisor Elizabeth Warren advocates following a 50/30/20 budgeting policy: Each month, allocate 50 percent of your income to necessary expenses, 30 percent to discretionary spending and 20 percent to savings and debt reduction.

Use this approach to identify where your children are increasing your expenses. You can then help them set up their own budget to contribute their share to family finances. For instance, if they need to pay for a car and gas to get to a summer job, this would fall into their necessary expenses. If they want a new video game, this would come under their discretionary category.

Itemize Extra Expenses

Ask teenagers to make a contribution to some of the outstanding discretionary expenses they add to the overall family budget. For instance, adding a teenager to an auto insurance policy can increase parents’ premiums by as much as 50 to 100 percent, according to a November 2013 Insurance Information Institute report. Other expenses to consider include snack food, luxury clothes, beauty and fashion items, mobile devices, Internet connections, music, movies, video games, extracurricular school activities and transportation.

Insist on Savings and Encourage Investment

It’s also important to teach teenagers how to balance their expenses with savings and investment opportunities. Insist they save a portion of their income, and make sure they understand how interest can grow their savings. In an interview with cnbc.com, Vanguard founder Jack Bogle suggested investing a small amount of their savings in index funds to teach them how investment works.

You and your child might use this strategy to work toward financial goals together. For instance, if your family receives regular payments from an annuity or structured settlement, you might consider selling your future payments in exchange for a lump sum of cash now, and then putting the money toward a joint college savings account that you both contribute to. Visit J.G. Wentworth’s LinkedIn page for more information about selling your future payments.

Adjust Responsibility to Income

It’s only fair to expect teens to make a contribution proportionate to their income. The average 16 to 18-year old brings in $1,631 a year from working, $293 from gifts and $16 a week from allowance, according to Charles Schwab’s 2011 Teens & Money Survey Findings. Sittercity reports that a 13-year old babysitter might earn somewhere between $10-$16 an hour, depending on where he or she lives.

Increase your teens’ responsibilities as their income grows. Raising their allowance, getting their first job or buying their first car are reasons to review their obligations.

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