As parents, we want to protect our children from making mistakes, but mistakes are an effective way to learn life’s most important lessons, and financial mistakes are no exception.
How do you allow a teenager to make mistakes that can be controlled? Well, it means letting them decide how to spend their money, even if you don’t agree with their decisions.
Of course, the degree of mistakes we allow our children to make should be appropriate for their age. Young children can make small mistakes, and older children can make big mistakes. We can guide our children through the ages and stages of making mistakes, slowly increasing the risks so that by the time they are teenagers, they will have had plenty of practice and will be better at making good decisions.
Your child’s relationship with money starts at an early age. When he or she gets money for his or her birthday, you have control over it. You can take a portion and put it in a savings account and tell him or her how much he or she has to spend.
At age six, it’s appropriate to give them between $5 and $20 to spend on whatever they want. You may not like their choice and you may expect them to cry with regret, but you have to let it happen.
You can increase the amount of money you want as they get older. It can go up to $30 and then $40. The more money they spend on something they regret, the bigger the buyer’s remorse will be and the more impactful the lesson will be. As a parent, it will also be harder to keep your opinions to yourself, so you’ll need some strength.
When your children become teenagers, this approach no longer works (nor should it). They are gaining independence and don’t want to be controlled too much. When a 14-year-old receives money as a gift or earns money, they won’t accept it being taken away.
And once your children start earning money by working, it will no longer even be under your control. That’s when you’ll start to see the effectiveness of the lessons they’ve learned.
But how big a mistake should we allow our 16-year-old to make? A $100 mistake? A $200 mistake? Sure, the stakes are higher, but still not devastating. And yes, we should allow it to happen.
A common mistake among teens (and one I’ve witnessed firsthand) is buying a gift for a boyfriend or girlfriend and then breaking up with them shortly after receiving it. Shame on them! But the next time your teen is thinking about buying an expensive gift, they’re more likely to stop and consider whether they’re going to spend all that money.
Older teens who are working and supposed to be saving for college are even more independent. They probably have plenty of money in their bank account.
At this stage, your ability to control how they save and spend is practically non-existent. But if you’ve allowed them to manage their own expenses from an early age, you shouldn’t have anything to worry about.
They will have learned the hard lessons of buyer’s remorse and will have the ability to see the benefits of delayed gratification as they save for the upcoming school year.
No matter how old they are, it is always appropriate to offer support and advice. When your child buys something they later regret, they will feel the emotional pain that comes with it.
Once the initial pain has passed and they are in a better position to talk about it, you can gently step in and reinforce the lesson. Let them know that everyone has experienced buyer’s remorse at one time or another and that even if they made the wrong decision, they can learn from it, put it behind them, and start rebuilding their savings.
It’s a money lesson they won’t forget.
Anita Bruinsma is a financial advisor living in Toronto and a mother of two teenage children. You can find her at Clarity Personal Finance.
