On a recent trip to New York City, on a glorious Monday morning, I found a Wall Street Journal at my breakfast café. The Wall Street Journal’s Personal Finance section never lets me down. In this issue, there were five topics on Personal Finance, and I found all of them interesting.
One was “Should You Tell Your Teenager How Much Money You Make?” with a YES argument by Manisha Thakor and a NO case by Beth Kobliner. Both make compelling arguments! Thakor argues “It’s a great chance to teach children about money.” This is one way to teach kids about money, but at what cost? To have a conversation about earnings with our teenagers, first we must know all that we intend to teach. What are our gross earnings? Net earnings? Why is there such a big difference between gross and net earnings? We know of tax withholdings, and some may not even understand how tax withholdings are calculated, but do we also need to understand our voluntary deductions, such as medical premiums, life insurance premiums and retirement contributions which are savings! Thakor states “teenagers will benefit from getting a real-life education about what it takes to support oneself.” I agree. It is important for our children to understand how much it really costs to support a household. Teenagers may be grateful for the conversation, but each parent must gauge readiness for themselves. I believe it depends on the teenager and the parent, and assessing the ability for rational conversation on this topic. One big disclosure Thakor makes is “you shouldn’t tell your teenager what you make until he or she is mature enough to process the information.” In some cases, teenagers may not be mature enough while a teenager!
Money conversations can happen sporadically with small details emerging as part of a larger picture. A family’s goals, ability to spend, ability and reasons to save are all great topics. Thakor states “the idea is not to sit your 13-year-old down one night to bluntly announce [salaries], without any prior discussion of family finances…” Here, I agree. She continues “…think of your child’s financial education as gradually turning up the light on a dimmer switch.” Thakor provides a structure for conversations, starting with needs, wants and savings. That makes great sense to me. I structure many client spending conversations on those three topics!
Conversely, Kobliner states “No matter what you make, it will probably seem like more than enough to afford those $150 sneakers.” I wholeheartedly agree with Kobliner, “the lesson can be taught better without the distraction of a salary figure.” She continues to explain “a big number [could] make them feel like they should keep up with the Kardashians, with all the wild spending and borrowing that suggests.” Also, differences in parental salaries may allow a teenager to create disparate views of parental roles.
If your teen keeps asking about salary, you can talk about median salaries, and “you can give a sense of where your family falls on the continuum.” I believe your child may already know where you sit on the continuum. Kobliner ends her article with a great point: during the Fall of their senior year in high school, your child will need salary data to complete their FAFSA (Free Application for Federal Student Aid.” There, you document your salary in plain sight.
I believe money conversations should begin before they leave for college, and earnings may be part of the topic. A teenager’s ability to manage their financial life will be enhanced by learning a family’s money values, the logistics of money, use of credit and saving for goals. Every college student needs to learn to manage spending. Learning what it costs to support oneself is essential, and sooner is better.