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Bay Area Parent


Hey Big Spender

How to Teach Teens About Financial Responsibility

By Corrie Pelc, Bay Area Parent

download original article (pdf)

Teens love to spend money. A recent report by Teenage Research Unlimited notes that teens spent $159 billion in 2005; nearly half of those interviewed predict that they will spend more in 2006.

However, teens don’t love to save money. A study commissioned by the National Consumers League found that 55% of teens surveyed said they work mainly for spending money, while only 35% mainly save. While nine out of ten teens say they save money, 36% admit that they are saving for specific items they want to purchase, 22% are saving for college and 27% are saving for no particular reason.

Teens may still be financially dependent on their parents, but it’s important for them to learn about financial responsibility and how to manage their money intelligently. “When we think about how our world is changing and how teens have more access to money than probably you or I did, it’s important for them to understand how to properly manage it,” says Sanyika Calloway Boyce, author of Teen Money Tips: Somple Steps for Banking, Saving, and Making Money. “It’s critical to their success at being an adult,” adds Kish Dill, board member and volunteer for Junior Achievement of Silicon Valley and Monterey Bay, which teaches financial education classes in public schools throughout Silicon Valley. “[Also] important is their success in getting through those difficult years after high school, through college, and into their early 20s.”

In most cases, it’s going to be up to parents to do the teaching. Most schools do not offer personal finance classes. According to Bryan Medlin, founder of Alameda-based Money 101, which offers financial life skills workshops for young adults, only seven states nationwide require students to receive instruction in personal finance before graduating high school. California is not one of them.

So, how can parents ensure that they are teaching their teens what they need to know about money management? To begin, help a teens set up a savings and/or checking accounts. Dill says these accounts are a step to financial independence and responsibility. “Often, when I go into a classroom, the kids’ only understanding of a financial system is: I get an allowance every week, and I can spend it on what I want,” he shares. “They never get the chance to practice and understand the whole concept. It also adds some pride to their life because, hey, this is my own; I am learning how to be independent.”

With a savings account, parents can begin to teach the concept of saving for the future, perhaps for “big-ticket” items such as junior prom, their first car or a school trip. Parents can even go further into the future by teaching their teen about the concept behind a 401K plan. For example, parents can say that for every $10 a teen saves from their allowance, they will match that amount. “It helps them see, ‘Wait a second, if I’m willing to put the money away and save it instead of spending it immediately, I’m actually going to get even more back,’ so the reward is huge,” Calloway Boyce explains.

Parents can also help their teen understand the difference between “needs” and “wants” and how to assess them. That is one of the topics covered in the “Money Matters: Make it Count” program offered by the Boys & Girls Clubs of Silicon Valley Levin Clubhouse in San Jose. “We talk about how parents usually provide all the things [teens] need and how they shouldn’t really depend on parents to give them things they want. Young adults should learn as teenagers how to start saving for the things they want,” says Erica Muniz, health and life skills director for the Boys & Girls Club of Silicon Valley. After parents set up a savings or checking account, they shouldn’t just walk away, Dill says. “This should be an ongoing discussion of, ‘Hey, my statement came in today. Let’s look at this and learn how to reconcile the balance with my checkbook,” he explains. “That is a perfect opportunity to promote dialogue without it being a lecture. It can be much more of a learning experience that way, instead of, ‘Here’s your allowance, Don’t spend it all in one place.” Parents should also be aware that many banks and credit unions offer special accounts with teens in mind. There’s Bank of America’s CampusEdge checking account for young adults 18 and up. According to Diane Wagner, a spokesperson for Bank of America, teens can receive a Stuff Happens card. “It’s good for a one-time service fee refund. So, if you did an overdraft with insufficient funds or you needed cash and went to a non-Bank of America ATM and had a fee assessed, you can use your Stuff Happens card so it will eliminate the service fee.”

Should parents let their teens have access to their money through a debit-card? Dill says it depends on the individual parent and teen. “A debit card is a fairly common way of getting cash and getting access to their savings account. So long as it’s understood that this is the same thing as having all your money tucked away in a mattress in your bedroom, I think it’s fine.” He concludes. However, parents need to emphasize the importance of keeping track of expenses. Says Calloway Boyce, “I had a kid say to me once, ‘Well, I don’t have to balance a checkbook because I never wrote a check.’ So the concept of balancing a checkbook needs to still be communicated although we are going to a paperless society.”

What about credit cards? “Teenagers and college students are inundated with card offers in the mail and this leads to trouble,” Medlin says. “Credit cards are power tools and, like a power tool, you can do something good with it or you can really hurt yourself. It really depends on how you use it. And as with a power tool, you need to have a certain level of awareness of the features and how to use it effectively. Credit cards are really no different.”

Calloway Boyce recommends that parents have a conversation with their teens about how credit is not evil, but rather, necessary. “Often, I hear parents say, “Oh, stay away from credit, it’s bad. It’s evil, you don’t need a credit card,” she explains. If you can create for your children a healthy respect for and a constructive relationship with credit while they’re still under your supervision, that’s going to make for a far more responsible and better credit consumer.”

Although special bank accounts for teens and financial workshops can help parents in their quest to teach financial responsibility, some experts also advise parents to use their daily financial transactions as teaching tools. “Include your kids when you’re balancing your checkbook,” Dill says. “I wouldn’t keep it a secret how much money you have in the bank account. Make it an activity that you go over with them; ask them what decisions you should make.” Dill also suggests including teens in financial decisions. “When you’re buying a car, sit down and ask, ‘How much money do we have in the bank? What type of car should we get? And, of course, the kid’s going to say, ‘I want the Escalade’ and you can say, ‘We don’t have that much money, we have this much money, what should we do?’ Any type of transaction when you’re doing normal day-to-day activities is an opportunity to engage your kid in learning.”

Other experts explain that a teen learns from observing his or her parents. “The savings and spending habits of the adults in the home certainly lay the groundwork for the culture of what the young adults will be doing in the future,” Wagner says. Learning to save and budget now will help teens when they go off to college, so they don’t end up misspending money set aside for food and school expenses. Says Muniz: “Even though parents help with college education or any kind of higher education, we want the kids to be able to learn why it’s important to go to college and how they should budget their money if they’re receiving financial aid or if their parents are paying for school.”

Plus, learning how to budget and manage money now will pay off in adulthood when dealing with shrinking pensions, rising healthcare and housing costs, and uncertainties surrounding Medicare and Social Security, Medlin says. “It’s not about how much money teens save—that’s irrelevant,” he explains. “What matters is putting in place the discipline and the awareness required to make progress. Every adult, myself included, can look back on their own lives and identify financial decisions that they made when they were younger that, gosh, if they had been a little bit smarter, how different their lives would be today.”


Corrie Pelc is special sections editor for Bar Area Parent

Oakland Tribune Article

Financial knowledge key to future

By Barbara Grady, Oakland Tribune

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Today’s teenagers have more money at their disposal than did prior generations of teenagers. A survey by financial firms reveals that spending by this age demographic averages $58 a week. According to a study by JumpStart Coalition, by the time they are seniors in high school, nearly a third of teenagers use a credit card. By college, that percentage jumps to 83% of students and their average outstanding credit card balance is $2,327.

Besieged by advertisements and active users of the Internet—where the only way to buy things is with a credit card—today’s teenagers are vulnerable to financial missteps. Think it may be a good idea to make sure today’s teenagers know something about money—about budgeting, the cost of credit, interest rates and saving? Alan Greenspan, former Chairman of the Federal Reserve, does; he says that gaining “financial literacy” in elementary and high school can “help prevent young people from making poor decisions that may take years to overcome.”

Indeed, the fastest growing demographic group declaring personal bankruptcy is people aged 20 to 24, according to Coinstar Inc. Yet research groups also say that most teenagers admit they don’t know much about finance and their parents haven’t taught them about managing money. A large survey of teens and their parents by Capital One, a major credit card issuer, and Consumer Action found that only 44% of teens said their parents taught them about money management while 70% of parents believed they had done so.

And rarely is financial education incorporated into scholastic curricula. Thirteen year old Natalie Boskin, who lives in Albany, may be one of the lucky ones. Her parents opened a savings account for her and she has come to understand the concept of saving money for future reward. Boskin saves the majority of her allowance, taking out only a certain percentage each week for spending. When asked what she is saving for, she says college. But her inclination to save is rare among her peer group. Boskin said, “I found I’m a much better saver than my friends. If they get $20 it is gone by the end of the week. My friends—the ones that spend a lot—have more money in the bank than I do. I think their parents put it there for them. But that is not teaching their child how to save.”

Several national and local organizations have sprung up to help teach adolescents about finances—about balancing checking accounts, about how compound interest rates help grow both debt and savings, and how debt obligations can affect credit scores.

The JumpStart Coalition, in Washington D.C., is the largest organization advocating for youth financial literacy. It has developed a curriculum for use by schools or nonprofit organizations such as scout troops. It’s Web site states that “Many young people fail in the management of their first consumer credit experience, establish bad financial habits and stumble through their lives learning by trial and error.” A survey of high school seniors found that, the 32% who use credit cards are slightly less likely than non-credit card users to understand how interest rates work and the mechanics of compound debt.

Locally, Alameda resident Bryan Medlin is one who took up the charge of teaching youth about personal finance. A California Maritime Academy college graduate, Medlin was appalled at the financial troubles his classmates accumulated. Medlin, who decided to build a business around teaching young people about money management, established a Web site, www.money-101.com, for this purpose. Recently, he has become a guest lecturer at Bay Area high schools, middle schools, and nonprofit organizations.

“It’s preemptive education. Certainly, without the benefit of personal finance training, a lot of young adults will make costly economic mistakes. Their parents don’t always teach them,” Medlin explained. He said that some amount of teaching about money is appropriate at each age, “To parents, I would recommend integrating practical financial education into conversation as early as 6 or 7 years old, the difference between coins and paper money and their respective equivalences should be taught. By the time parents are ready to give their kids an allowance, it makes sense to talk to their kids about budgeting. Many young adults spend money frivolously and, after a week, usually have no idea where their cash went. By tracking personal spending—which can be easily done using a computer and personal finance software—and planning expenditures within a semi-rigid framework instills financial discipline that will benefit them for years to come. By the time they reach high school and college age, young people should understand the time value of money, such as how stocks and bonds work and how to evaluate and select investments that will help them accumulate wealth in tax advantaged retirement accounts. Given average stock market returns over a multi-decade period, young people need only save a small amount of money to become millionaires at age 65. That’s a powerful message.”

Business writer Barbara Grady can be reached at (510) 208-6427 or bgrady@angnewspapers.com