by David Paltin, PhD (child psychologist)

The High Stakes of Child and Teen Finance

Your kids and teens are the target, and changing the way they act, think, and behave is the goal.  Creating a new addiction in them is the approach.  If we were talking about the tobacco or alcohol industry, we'd sit up and pay attention, right?  If it were drugs we were talking about, we'd start asking hard questions and searching rooms.  But the kind of life changing, addictive cycle we are holding up the lens to in this article are kids' and teens' finances.  The statistics on the problem are staggering -- 1 in 3 high school teens use a credit card, the average debt of an entering college freshman is $1,585.  According to the 2010 Junior Achievement and Allstate Foundation survey of teen finance, 42 percent of teens who do not budget their money do not want to learn about budgeting, while 74 percent of teens say they will have a credit card by the time they enter college.  Can we assume that our kids have learned anything from the recession and economic crisis, or have we missed one of the most "teachable moments" of their lives?  

Past generations of kids who have gone through economic hardship seem to have done much better in understanding basic financial concepts.  If you looked in the kitchen of a 1920's depression-era survivor, it would be common to find a cupboard or pantry stocked to the edge with canned goods.  The basic financial concept here?  That keeping a reserve savings of a commodity is good preparation for the unexpected.  Baby boomers let this wise habit fall away, most of them not having to worry about the day's meal or dealing with hunger.  At the same time, the financial industry was developing marketing and behavior change strategies and pushing for unregulated credit markets to hook people into a negative debt cycle that could have them paying interest the rest of their lives.  Sound a little paranoid?  Credit card issuers have developed millon-dollar programs and products that allow them to enter schools and provide "finance education" to kids and teens, and market teen-friendly cards that teach kids the "smart" way to use credit.  Has the recession and new regulations on credit cards given our children a lasting lesson in money and credit?  Maybe we shouldn't take the risk and assume that it has.

Taking Back our Kid's Financial Education

This multi-billion dollar marketing and political program is not only directed at our kids' wallets, it is targeting how they think.  To fight back, let's examine how to recession-proof our kids so they won't become financial victims in their adulthoods.  First, there is some groundwork we have to teach them that go way beyond walking them through a budget and using their first ATM card.  These aren't facts about how to set up a savings account, they have to do with your child's relationship and perspective on money.  These are the teaching points that might really make the credit industry squirm:

• Spending Money Must Equal Making Money - Ask most kids if they want to do more math than they have to and the answer will probably range from a sheepish "no thanks" to a more straightforward, "you've got to be kidding."  No wonder their eyes glaze over when we sit down with a calculator and budget worksheet.  But there's no reason to make the math more complicated than it is, and the most important part is that they understand the simple income = spending equation.  Instead of a calculator, send your child to the checkout counter with a five dollar bill and an item that costs more than five dollars to see how the math works in real life.  It may be a little embarassing, but carrying debt from overspending is embarassing also.
   
• Are You a Consumer or Are You a Producer? - To the government, the Commerce Department, and the economic pundits on cable news our kids aren't human beings filled with new potential, they're called "consumers."  And when we are consuming more, the government tells us the economy is good.  Maybe as this recession passes it is important to remake ourselves as producers, not just consumers.  Have your child or teen come up with a list of things they produce that are valuable, things that other people need or want.  Even Caring for Others can be a valued item on the list.  Have a discussion with your child about what happens when people only consume and don't produce.

   

• Ads Teach You How to Spend Your Money and Get Into Debt - When a company is selling the latest art kit toy on television, the point is obvious; that kids should ask mom or dad how to dial a 1-800 order number.  But children and teens have much more difficulty understanding or recognizing the message of ads about credit cards, and how they encourage impulse buying and a positive association to plastic.  With images of friend outings, family trips, and making people happy by buying expensive items on impulse, children don't usually hear the underlying announcer who teaches us how to rationalize and explain away these choices.  Parents can help kids and teens become much more ad saavy by making the messages obvious: "They're telling you to just think about making yourself happy right now, not what it will really cost," and "They're saying you should tell yourself that spending money without thinking about it will make your life more special.  The truth is that being in debt is miserable, not special."  Have your kids try to figure out the hidden message or how the company wants to change what you say to yourself about spending.    
   
• Lifestyle Doesn't Make People Rich, And Neither Does a Coin Jar - "Live like you own it," is the infectious theme chanted by countless reality TV shows and demonstrated in middle and high schools across the country.  Whether mistaking their parents' savings account as their own, or just feeling envious of the kid at school that seems to have it all, children and teens are embracing the message that looking wealthy is the same as being wealthy.  Its a hard sell to convince them otherwise, as most of their sources outside of home and through electronic media promote this idea, or the idea that money can come from unethical and immoral choices.  On the other hand, we often mistakenly tell children the myth that the path to riches comes from one coin dropped in the jar at a time.  In truth, becoming wealthier has to do with producing more income over time.  Maybe that starts with a collection of dimes in a jar, but sticking with dimes without growing income into quarters and dollars won't be effective over time.  If a teen is ambitious and wants to pursue a six-figure bank account by the time they are 25, then understanding that they need to produce more than one source of income is an important lesson.

Examples of Financial Lessons are All Around Us

Of course, some of us are experiencing some heartbreakingly tough financial lessons right now, and some of our kids are learning through troubling experience.  But if we have stayed above water during this recession, the emerging credit card mailers and TV ads, along with the government view of us as "consumers" give us plenty of opportunities to change the way our kids relate to finances, credit cards, and cash.  Although it usually backfires to ask a teenager why he or she made a particular purchase, maybe it is possible to use the following questions as starters in their financial education:

• How do credit cards work?
   
• What is the link between credit cards and real money?
   
• What kind of financial decision-maker are you?
   
• How are credit card ads on TV teaching you how to think?

These are just a few ways to open the conversation that should continue from elementary school until they reach financial independence.  Need some additional help?  Check out Allowance Magic: Turn Your Kids Into Money Wizards by David McCurrach or Steps to Build Your Financial Future  from McGraw Hill/Glencoe (Both available at Amazon.com or your local bookstore).  Leave it to the media, and they might just never leave home.

More information: Helping Your Teen Understand the Value of Money