4 finance experts -- and parents -- talk teens and money
Experts with teens relate their own experiences
Is there a better way to teach your teen how to manage money and stay out of credit card debt than to turn to financial experts who are the parents of teens themselves?
Today's teens are eager to listen. According to a 2007 Charles Schwab survey, 93 percent agree that it's important to know how to live within your means and to have good money habits to be successful in life. In another Schwab analysis, the "2008 Parents & Money Survey," parents cite budgeting (64 percent) and credit card management (55 percent) as the top two topics more important today than when they were teens. However, only 49 percent of parents have actually taught their kids how to budget and a mere 29 percent have educated them about credit card interest and fees. About 70 percent of parents have taught their teens how to cook and do laundry.
Living beyond their means and getting into credit card debt are the top two financial concerns that parents have today, according to the 2008 survey. Here is practical advice for parents with these concerns from experts with a teen or two in the house themselves.
Teen scene: Laurie Majors from Lake Arrowhead, Calif., loaned money to her 19-year-old daughter and assumed that she would receive a payment every two weeks on her daughter's payday. Instead, the teen purchased a fancy new cell phone. "I think her youth and inexperience combined with a lack of real-life economic responsibilities takes her far away from really understanding what debt means," says Laurie.
There are still banks that issue ATM cards and the beauty is that they can't overdraw.
|-- Henry Walker
Farmers & Merchants Bank CEO
What the expert says: "The parents should have established a repayment schedule to provide structure and discipline for their daughter," says Charlie Crawford, chairman, president and CEO of Private Bank of Buckhead in Atlanta and the father of two teens, ages 13 and 15. Paying a specified amount each payday until the loan is paid off is a good learning experience. Crawford suggests that Laurie help her daughter establish a budget. Start off by identifying her sources of cash and any financial obligations she may have, which includes repaying her parents. If she had made, for example, an agreed-upon $50 loan payment and had money left over after payday, then a discretionary purchase -- like a new cell phone -- would have been fine.
Teen scene: Englewood, Colo., Mom Trina Lambert has 16-year-old twins, a boy and a girl. They are careless about keeping track of the balances in their savings accounts; her son was recently off by $700! She would like them to get checking accounts with a debit card when they turn 18, but she is afraid that they will run up overdraft fees.
What the expert says: Henry Walker is the CEO of Farmers & Merchant's Bank based in Long Beach, Calif., and the parent of two teens, 14 and 16. He says that it's better to link a teen's checking account to an ATM card rather than a debit card. "There are still banks that issue ATM cards, and the beauty is that they can't overdraw," he says. A debit card can be used practically anywhere and banks like customers to have them because overdrafts generate fee income. Don't rely on online banking to check the balance on an account because it will not be accurate if there are checks that have not cleared. "I'm a banker, and I use and recommend Quicken to keep track of account balances," Walker says.
When my son turned 18, I suggested an American Express card that required the balance to be paid each month.
|-- Frank Sorrentino III
North Jersey Community Bank CEO
Teen scene: When Melody Cryns' 16-year-old daughter earns money, it's gone in minutes and she usually doesn't know where the money went. "She has no concept of saving for anything," says the Mountain View, Calif., mother.
What the expert says: "With a 16-year old, there's a lot of money going out the door just for normal lifestyle expenses," says Joseph Montanaro, a financial planner with USAA Financial Planning Services based in San Antonio, and father of a 19-year-old. Consider the common teen expenses: a car or using a car, school clothes, their activities. The expenditures add up quickly. Sites such as Mint.com or an iPhone linked to their bank accounts let today's high-tech teens keep a virtual eye on their spending and savings.
|Discover introduces teen debit card|
New for 2009: Discover's Current Card is "a convenient and safe payment tool that tracks your teen's spending and delivers financial lessons that moms and dads want," says Mike Boush, vice president of marketing strategy and new initiatives.
Funds can be deposited by the teen's employer via direct deposit or loaded by parents from their credit card, bank account or recurring deposits. The card eliminates the risk of overdraft fees and gives parents the ability to set spending limits and block certain merchant categories at the parents' discretion.
Teen scene: Bethany Cagle, from Haleyville, Ala., has two teens, 14 and 15, and wants to get into their heads that they should not use credit cards for things they can't afford.
What the expert says: Frank Sorrentino III, chairman and CEO of North Jersey Community Bank and the father of two teens, 17 and 19, recommends prepaid or stored valued cards to get kids in the habit of not spending more than they have. "Part of the reason we're having the problems we have today is because it's too easy for people to buy things that they can't afford," he says. A credit card should be used for convenience, not to have the ability to make monthly payment. "When my son turned 18, I suggested an American Express charge card that required the balance to be paid each month," says Sorrentino.
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