Features - Back to school - money matters for adolescents and young adults
Seems like every second teenager has an iPod and a mobile phone, and chances are, many of them already have the debt to prove it. Here are some tips for educating adolescents and young adults about money, and tackling one of the most common financial challenges they are likely to face.
Good habits start early...from 12 to early teens
If you've helped your children establish a savings ethic early (see our fact sheet on kids and money for more on this topic), then it will be more entrenched by the time they become old enough to take on odd jobs that may start to earn them money, such as babysitting, or doing odd jobs for neighbours, or taking on a paper round. More casual forms of 'employment' can happen for children as young as 12, right up until they're old enough to get regular paid work (at around 14 or 15, depending on the State they live in).
Children in their early teens encounter money in different ways, such as:
pocket money - perhaps including the odd raise;
getting paid for odd jobs, such as feeding a neighbour's pet while they're away, or doing other odd jobs for family and friends;
a first official job for an employer - such as a paper round;
contributing to family budget discussions and helping to 'do their bit' for the family's finances
The savings habit
If your child is starting to earn some money of their own, think about making a rule that a certain percentage of their income must be put into longer-term savings. You may also want to set some parameters around what the rest of their income can be used for, for example buying CDs, or going to movies with friends etc.
If there is a particular item of clothing that the child wants, or a DVD or portable music player, you could help them to formulate a savings plan to purchase the item. Help them to establish a realistic goal that they can work towards on their limited income. How much of their allowance will they save each week? All of it, or just a portion? Compare different rates of savings and the impact they have on how long it will take to save up for the item.
Establishing good savings habits early helps to reinforce the fact that many items in life require hard work and a disciplined financial approach if they are to be attained. An awareness of how long certain things take to save up for can also help to instil a greater sense of the item's value.
The budget habit
To help reinforce the savings plan, why not suggest that your kids create a budget? Get them to write down how much money they receive each week, and the sorts of expenses they might incur. Younger adolescents probably won't be contributing to household expenses, but there may be an understanding that their allowance will cover any of their own entertainment needs, such as CDs, DVDs, books and magazines, and perhaps even going to the movies. By creating a budget they can allocate portions of their overall income to different needs and wants.
Children in this age bracket may also be able to start taking a more active role in discussions about the family's budget. If you want to save more money as a family, ask the kids for their suggestions and agreement on what the family could save for - for example, they may have some ideas on where they'd like to go for a holiday, or what they'd like in a home entertainment system.
Once you've agreed on what you're all collectively working towards, kids can also be involved in discussions about cutting costs - they could agree to watch for lights that have been left on, they could make sacrifices such as cutting back on junk food in the weekly shopping, or perhaps they could agree to join in a family garage sale and sell off some of their old toys.
Setting an example through your habits
The savings habit and budgeting habit will both stand young adolescents in good stead as they reach their later teens and young adulthood, when their income typically starts to increase, as well as their expenses, and when the items they are saving for tend to be more substantial. But one of the most important things to bear in mind when it comes to kids and money is that you set an influential example through your own money habits. If you have good habits when it comes to your personal finances, and if you're keeping financially fit, your kids will already be off to a flying start just by watching you in action!
Older teens and young adults
As your kids reach their late teens, they're more likely to be taking on regular casual work and receiving an income. And while their experience of money will be similar in some respects to their earlier teens, some notable differences may start to creep in:
the need to pay tax on income;
saving for 'big ticket' items such as their first car;
saving for an end-of-school trip;
going it alone with bank accounts and ATM cards;
dealing with credit and debt in the form of credit cards and mobile phone bills etc.
Too old for pocket money?
You'll be the best judge of whether or not your older children are too old for pocket money. For young children, it is often their first experience of having money of their own, but it can be equally educational for teenagers.
Some teens receive all of their income in the form of pocket money, while those who have casual or part-time work might still have that income supplemented by a regular (although perhaps reduced) allowance.
Pocket money can help teach teenagers how to be sensible with their money. They may be less likely to make a rash purchase if they know they're using their own limited resources. And, if they do make a rash purchase, and are not happy with how they've spent those resources, they may be less likely to repeat the behaviour if they can't keep drawing on parental funds.
If older children get into difficulty with money, it's okay (and sometimes necessary) to help them out, but make sure it doesn't become a habit. You might agree to help them out once or twice, but let them know what your limits are, and make sure they're clear on their responsibilities when it comes to how they use their money.
Youth debt - a rising issue
Along with issues such as drugs, youth suicide and unemployment, a 2003 report commissioned by the NSW Office of Fair Trading found that young people aged between 15-17, 18-24, and their parents, all nominated youth debt as a serious problem for young people. And the major culprit when it comes to youth debt? Mobile phones.
In the same survey, almost 50% of people under 18 indicated that mobile phones were the major cause of youth debt, while 34% of 18-24 year-olds gave them priority; all considering mobiles to be a greater issue than credit cards and car repayments.
The research also indicated that the average debt for 16-18 year-olds was around $3,390; mobile phone debt was a major component.
The mobile minefield
One of the big problems with mobiles is that many plans make it so easy to rack up individual call costs without being aware of the mounting total. Add to that the fact that our kids are tempted with various promotions and competitions urging them to phone or SMS, and that all their friends seem to be doing it, and it's not hard to see why so many teens and young adults get into trouble.
The situation isn't helped by often-complicated contracts, especially when you consider the average teenager's inexperience in dealing with legally binding, financial arrangements.
SMS - a popular, quick and easy communication method - might seem relatively cheap for individual messages, but by the time a text message conversation is finished, a single 25 cent SMS may have turned into a conversation involving ten or more messages...and that was just on the train heading to school.
Premium-rate SMS services (such as those used to vote for contestants on popular television shows) are even more expensive at more like 55 cents per message. It's not unusual for teens to 'vote' for their favourite contestants multiple times. Add then there are the costs associated with extras such as ring tones and screen pictures.
Mobile phones can also be used more like credit cards thanks to the increasing popularity and availability of "m-commerce", whereby goods and services (such as snacks and drinks from vending machines, or parking meters fares and other transport costs), can be charged to a mobile and then paid with the regular mobile bill.
Managing that mobile
So with mobile phones becoming increasingly common fixtures in teenage and young adult life, what can you do to help them avoid mobile debt and a possible early blot on their credit record?
Shop around
When buying a mobile with or for your teenager, help them to shop around for a plan that suits their needs and their budget. It will involve some research, but it's important that your child be involved in this process as it will help to reinforce the fact that a mobile phone is a serious financial commitment, and that finding the most suitable option requires research.
Clarify who's responsible
Stress that any call costs and handset repayments must come out of their own earnings from part-time work, or from their allowance. Or, if you have struck a deal whereby you will pay a portion of their costs, make it absolutely clear what the limit of your contribution will be.
Consider prepaid or capped call plans
Many experts agree that the best way to avoid getting into difficulty with mobile phone debt is to go for a prepaid service. This way, you can only make calls that you've already paid for. And parents needn't worry - if the money runs out, they can still make free calls to 000 in the case of real emergencies. It's also possible to continue to receive calls, even when their credit to make calls has run out. Alternatively, capped call plans only allow users to spend a certain amount each month.
Read the fine print
Above all, be sure that they are well aware of the fine print if they are considering signing mobile phone contract - this is a vital lesson in managing financial products and arrangements. And remember, if your child is under 18 and you are a signatory to a contract they sign - you are ultimately responsible for ensuring the debts are paid off, even if the call costs are incurred without your knowledge or supervision. And be vigilant; many contracts can lock you in for two to three years, and early exits can prove costly.
Beware of offers with 'free' phones
Some mobile offers promise free phones if you just sign on the dotted line. Look carefully at what you're paying when it comes to other aspects of the deal, for example call costs may be very high, and the contract may require a substantial minimum monthly amount to be paid. Some way or another, the provider will recoup the cost of that phone, and despite advertising it as 'free' - that cost will come out of your child's wallet (or yours).
More information
There are a number of resources out there to help teenagers and young adults become competent money managers. Teens and their parents can try these links for starters:
www.fido.asic.gov.au- the Australian Securities and Investments Commission's consumer website, fido, houses a young adults portal containing money tips and information for young people.
www.fpa.asn.au - the Financial Planning Association has created DOLLARSMART, a financial toolkit for teenagers, available for download in pdf format, or to order on CD, from their website.
www.tio.com.au andwww.bfso.com.au - the Telecommunications Industry Ombudsman and the Banking and Financial Services Ombudsman have jointly released Sort it, a bulletin showing the sorts of problems that can occur for young people with mobile phone and credit card contracts and debts.
MoneyMinded meets the Financial Literacy Foundation's Essential Elements eligibility and assessment requirements and has been assessed as being of good quality. MoneyMinded offers independent and unbiased consumer information. Its development was initiated and funded by ANZ with contributions from community sector and education experts. MoneyMinded does not contain any ANZ branding or promotion of financial products and services.
