Teach teens to avoid money traps
- From: National Features
- October 07, 2012
HAVING teenagers can be challenging in many ways but a key lesson parents can teach their adults-in-the-making is how to avoid financial traps.
And this really starts with understanding the value of money, says chief executive of Resi Mortgage Corporation Lisa Montgomery.
Central to that understanding is the credit/debit system, where money is an idea associated with a piece of plastic and not necessarily some notes or coins in your wallet, she says.
Many of us don't keep cash any more, so kids are used to seeing parents put plastic over the counter and having parents pay for things online because that's the generation we are in.
She says that using a ledger system - with teens keeping a written record of any money they have earned and any they have spent, rather than dealing in actual cash - can be a help when it comes time for them to manage their own banking and spending.
Montgomery says parents should also show their teens their own bank statements so they can see evidence of their parents' spending and income.
"We can't discount the fact that kids are not necessarily going to understand the value of cash money as much as in other generations, but they really need to understand this system of debit and credit because their lives will actually be built on that," she says.
Montgomery also says teens need to know how to have healthy online financial habits and to understand that personal financial details need to be carefully protected.
AMP financial planner Claire Esmond says among the top five financial traps for teenagers is getting into trouble with credit cards, so parents should be encouraging them to opt for a debit card.
"Don't give your kid a credit card until they're either old enough to go out and get one themselves or in permanent work," Esmond says.
"Encourage them to get a debit card instead of a credit card, or even better, encourage them to save first."
She says in general, teenagers won't be able to sign an offer to purchase a car until they are 18, but even at that age a second opinion is a smart move so they don't end up buying a lemon.
Parents should encourage their teenagers to take their time with such a major purchase, do their research and use experts like mechanics to check any vehicle before buying it, Esmond says.
"Encourage them not to do anything on the spur of the moment," she says.
One of the first financial hurdles teenagers can face is overspending on a mobile phone, and Australian Communications Consumer Action Network spokeswoman Elise Davidson says parents should encourage their teens to opt for pre-paid phone plans.
"That way, they're going to avoid racking up enormous phone bills from things like excess data charges, which catch teenagers and adults out alike," Davidson says.
"However, that's sometimes hard to say to teens because, generally, you can only get the latest handsets and smartphones if you're on a contract."
She says one way for parents to get around this is to hand down their smartphones to their teens when they update.
Teenagers under 18 cannot enter into a mobile phone contract in their own right, so it is within parents' control.
TOP FIVE YOUTH FINANCIAL PITFALLS
1. Mobile mix-ups: Parents can go through a phone contract with their teen so they understand their rights and obligations and those of the phone company. Consider pre-paid instead of a contract.
2. Sucked into a scam: Never sign anything without reading the fine print and ask questions to clarify the commitment being made. If it sounds too good to be true, it usually is.
3. Credit card crunch: If you don't have the money, don't spend it. Compounding interest can be a friend to savers, but it can dig a deep hole of financial woe for credit card users.
4. Being taken for an employment ride: Parents can check over any employment contract. Sometimes lack of experience by teenagers can be taken advantage of by unscrupulous employers.
5. Buying a lemon: For under-18s, buying a car will usually require a parent's help. Even for teenagers who are over 18, it would be wise to get a second opinion.
Source: AMP financial planner Claire Esmond