5 ways to raise a money-savvy teen

Feb 19, 2010 at 10:46 a.m. ET

By the time kids are teens, they know that money doesn't grow on trees -- the question is whether they care. Want to earn big dividends fast? Invest a little time in teaching your kids what they need to know about money.

Teen with $20 Dollar Bill

If the financial crisis of the past few years has taught us anything, it's that we need to do a better job of educating ourselves and our children about money. Far too many otherwise intelligent people forgot one of the most basic rules of finance: you can't spend more than you have. Sure, borrowing money for extravagant homes, using credit cards to pay for luxuries, and leasing a car you could never afford to buy offers instant gratification. But -- as evidenced by the vast number of foreclosures, bankruptcies, and repossessions the country has seen -- it's not a viable long-term plan.

Maybe you managed to weather this storm relatively unscathed. Maybe you're patting yourself on the back, pleased that you've kept life more or less steady for yourself and your kids. And that's great. But unless you're also teaching your kids what they need to know about money, you've still got some work to do. Here are five important ways you can contribute to your teen's financial education.

1. Stop paying for things.

Even if you can afford to buy your teen a car, a cell phone, an iPod, or whatever else his heart desires, don't. Maybe you're sparing yourself a little bit of whining, but only until the next cool thing comes along. And twenty years from now, you'll be the one weeping as you hand over fistfuls of cash to an adult who still feels entitled to whatever he wants.

Your teen wants a car? Work out a payment plan. New video game? Those leaves aren't going to rake themselves. A cell phone with a data plan? Better dial up the babysitting. There are plenty of ways your teen can earn money, and there's no better way to understand the value of a dollar.

See 12 ways to teach your kids how to save.

2. Create a budget.

Sit down with your teen and work out a budget. Whether you work solely with his earnings or you allow him to help balance a portion of the family's total budget, let him experiment with the numbers. We all make financial mistakes, and it's better if he makes his now, when the numbers are smaller. Let him see firsthand what happens when you blow the gas budget on pizza and you have to walk to school.

3. Carry cash instead of cards.

Modeling smart financial behavior is a great way to teach your kids. For many people, credit cards quickly translate to debt. Even debit cards let you spend more than you planned. But carrying cash forces you to stick to a budget -- you can't spend what you don't have.

You can also demonstrate your respect for money by taking care of your cash. Keep it organized and properly stored in your wallet. Take an extra moment at the cash register to put your change and bills away properly. Let your kids see you doing this, and teach them to do the same.

4. Explore online financial tools.

When was the last time you sat down with a paper check register and balanced it? Yeah, exactly. Certainly, though, keeping tabs on your finances is important, so look into an online financial tool such as Mint.com. Set your teen up with an easy way to check in on his finances daily -- it's a great habit to encourage.

You can also teach your teen how to balance a checkbook register and reconcile and account manually. It is a good skill to have, even if he doesn't use it all the time.

Read more about teaching teens about finances.

5. Encourage ongoing financial education.

You've never learned all there is to know about money. Read books and Web sites about managing money. Learn about investing together. Don't make money a taboo topic in your home. No, your kids don't need to know how much you earn, but they need a chance to ask questions and understand the big picture.

Teach our kids about money today, and they'll be in a better place tomorrow -- and for the rest of their lives.

What about allowances? Get expert-approved real world approaches to allowances here.