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Financial lessons from back-to-school shopping

Schools are already starting to open around the country and classes are soon to begin for many high school students. The flurry of shopping underway in many households can give parents a chance to teach their teenage children valuable skills about spending and saving money.

Here's my suggestion for how to take advantage of this opportunity. First, sit down together and make a back-to-school shopping list of all the things they'll need this fall. Include the estimated costs for each item, then total up the list.

Here's where it gets interesting: Give your teen the money to buy all the things on the list and drop him or her off at the local mall to shop. Before you do this, set two simple ground rules:

  • All items on the list must be purchased, and,
  • If it's not on the list, they cannot use the money you gave them to buy it.

To get them excited about saving money, consider striking this deal: if they buy all the items on the list, any money left over is theirs to keep. Encourage your newly empowered shopper to look for sales and use their smart phone to look for mobile coupons with apps like RetailMeNot.

Discourage frivolous spending. If they blow any of the money you gave them on other items, there should be consequences. Consider something like having them spend their next weekend doing extra yard work or housecleaning to pay for any unauthorized purchases.

Some parents ask if they should require their kids to use their own money for back-to-school supplies and clothes. This is totally a personal decision. But requiring your teen to make some contribution towards back-to-school costs is something most parents do when their student goes to college. Setting the stage for this arrangement in high school seems like a good and reasonable idea. The first step is encouraging them to get a job.

When it comes to learning money management skills, one of the best teaching tools for teens is to have an occasional or part-time job. Paid employment teaches a lot of things we often take for granted, such as tax withholding allowances, the W-4 worksheet, FICA tax, basic banking and depositing of paychecks.

Also, there are tax lessons. After year-end, your teen will receive a W-2 or Form 1099 and he or she will need to learn how to prepare and file their own tax return. Remember, if your child earned less than $6,200 in 2014, then they will have no taxable income to report and are not required to file a tax return. But if taxes were withheld from their pay, they'll still want to file a tax return to claim a refund of the withheld taxes.

If your teen is unable to work a part-time job (too young, lacks of transportation, or decent opportunities) then consider an allowance. The general rule for an allowance is that the money should be earned for some regular household chores and that they can use it to buy things they want (but don't necessarily need).

Check back in a few days, when I'll write about the basic things parents and teens need to think about when it comes to checking accounts, debit cards and credit cards.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.