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Giving to your teens: Holiday gifts or handouts?

It’s the same story each year around the holidays and birthdays. Ask teens what they want for a gift and they almost always just say “cash.”

While it is easier on parents and siblings to give the gift of money, in reality it may not be the best way for them to learn lessons about money and saving.

How do your teens save up for large purchases? Teaching teens about saving is an important part of preparing them for the adult world. Many teens have part-time jobs to earn spending money, while some teens earn an allowance for doing chores around the house. Could your gift-giving strategy be sabotaging their financial plan?

Saving is important

Learning to save money toward a specific goal — maybe a ski weekend with friends or a new iPod — teaches teens the value of the money they earn. Our children are growing up in a culture of instant gratification, which makes the concept of savings even more difficult to teach. According to a study by ING Direct, a whopping 87 percent of teens admit they don’t know much about personal finance. “They do want to learn, but right now they don’t have the tools they need,” says Laura DiLello, ING Direct spokesperson. “They know that having a savings account is important.”

Giving cash to your teens for birthdays and holidays is always the easiest option, but this can quickly derail savings goals. Teens realize that they can just ask for money in lieu of gifts and may begin to include that “extra” amount in their spending plans. Your daughter may be tempted to blow $50 on salon highlights if she is expecting a wad of cash next month for her birthday. Jen, mother of a teen daughter, has seen this happen in her house. “There is always a big ticket item she is saving for,” she shares. “Rather than saving a set amount from babysitting jobs or allowance each month, now she just waits to see how much cash she gets for her birthday.”

The value of a dollar

You hated the lecture when your own parents delivered it, but the message still rings true — it’s important to learn the value of a dollar. According to the latest statistics, teen income accounts for over $91 billion in the U.S. alone each year. Whether your teen earns money babysitting, working at a fast food restaurant or doing chores at home, equating work with earnings is a crucial lesson. Fifty dollars may not seem like a lot of money when it’s a gift, but it takes a lot of hard work for a teen to earn that amount. Fast forward a few years in your teen’s life and he will be making career and higher education choices that impact his future earnings potential. Lessons about money now will shape the spending and savings habits of your child’s adult life.

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Help them learn — and earn

Sometimes teens are saving for such a big ticket item — maybe a summer trip or a used car — that it seems they will never reach their goal. Help them set realistic expectations of how much they can save and how long it will take. Nothing is more frustrating than trying to reach an unattainable goal. If you are willing (and financially able) to help them, consider setting up a matching plan, much like your company’s retirement plan. You could offer to match one dollar for every five dollars she saves, or offer a “bonus” addition to her savings when she reaches certain milestones.

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Get creative

If you have a hard time with the concept of “no cash” for gifts, consider gift cards for favorite stores or restaurants so that your teen will actually be treating herself, not just pocketing cash. You can make your own gift certificates to present for activities — say a ski day or a day at the amusement park.

Take every opportunity you can to teach your teens smart saving and spending habits now, for a better future later.

More on parenting teens

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