Teaching Your Teen Money Lessons: Smartphone Edition

Man smiling with his son
Man smiling with his son

Today’s teenagers sure seem to have some champagne and caviar tastes. A survey of nearly 10,000 teens (from households with average income of $65,400) reports that more than eight in 10 already have an iPhone, and nearly nine in 10 expect their next smartphone to be an iPhone. That typically comes at a steep price, compared to less expensive Android smartphones.

Apple’s recent rollout of its iPhone SE tees up a fantastic opportunity for parents to serve up a real-world money lesson. At a starting price of $399, the iPhone SE is less than half the cost of other iPhone models — the iPhone 11 starts at $1,000 — but has plenty of the bells and whistles to sate your teen.

The “Lots to Love. Less to Spend” marketing line Apple is using to push the iPhone SE is a parent-ready lead-in to a teachable moment that can introduce money concepts and habits that will pay off for decades.

For parents who feel it is their obligation to pay for a teen’s smartphone — and, um, there’s no parenting commandment that says it is — here’s how to slide money lessons into the negotiation.

Lesson 1: Opportunity cost. A dollar spent today is a dollar you don’t have to invest for the future. Your kid doesn’t need you to point out that the iPhone SE is $600 less than the iPhone 11. They’ve got the math skills for that.

But they might benefit from a quick spin through the future value of that $600, thanks to the miracle of compounding. Invest $600 today, and it could be worth more $70,000 in 50 years, assuming a 10% annualized rate of return. (For the record, the long-term annualized gain for the S&P 500 stock index is 10%.) A quick web search of “compound growth calculator” will send you to free tools you can use to see how money invested today, not spent, might grow.

Got a family cell plan that makes upgrades less expensive? Great. But the same concept still holds true. Even in 24 monthly payments, you’re going to be spending more for the highest-end models.

Lesson 2: Lifestyle creep. In the personal finance vernacular of needs vs. wants, it’s fair to view a smartphone as a necessity in our wildly connected lives. But that shouldn’t be confused with what most teens want: the more expensive/coolest models.

Get this choice wrong and it can become the gateway purchase that afflicts your kid for life with a bad case of lifestyle creep: buying the nicer car than is necessary, purchasing the bigger house … and then insisting they simply can’t save enough for retirement, or are pinched raising their own kids.

It also can open the door to conversations around setting a smart family college budget. Their dream school may be a want, when what they need is a degree that doesn’t sink them or you into gobs of debt. While the lifetime value of a bachelor’s degree (or associate’s degree for many professions) is indisputably strong, the focus should be on finding the school that will pony up an affordable net price for college.

Lesson 3: Used vs. new. Just like buying a certified pre-owned car with a dealer warranty can be a money saver, you might want to check out refurbished models that come with a warranty.

Lesson 4: Own it for as long as possible. Lay down some expectations on their next upgrade: You expect them to keep that phone for X years. Not months. Years. The teen who learns the value of using something for as long as possible might become the adult who appreciates the value of not leasing a car and financing with as short a loan as practical with the intention of driving it payment-free for years.

Lesson 5: Save for it. If you feel it is your parental role to pay for a smartphone, setting the terms for what you will cover is perhaps the most important lesson to impart. Circling back to needs vs. wants, your funding should be limited to the “need.” Set your budget. If that’s not enough for your teen to land the model they want, it’s on them to finance the difference. That just might create a nifty habit that helps your kid grow into an adult with a healthy understanding of the value of money.

(Article written by Carla Fried)