The strategy To teach teens about money.
How on earth do I do that?
It's a big ask, but an important one. Just last week a Mission Australia report on poverty found that more than 145,000 15- to 24-year-olds were living in poverty. The rise in part-time and casual work and the easy availability of credit, plus a range of other factors, have created new challenges for younger people. Unfortunately, managing your finances still isn't widely taught at schools.
The Financial Planning Association is pushing for better financial education and has released a financial planning workbook for teenagers, Dollarsmart, to try to kick the process along. Gwen Fletcher, a special adviser to the FPA's schools program, says while some teenagers can be very savvy about finance, it's easy to get into debt and develop bad financial habits. She says the most important thing for younger people to learn is how to prioritise their spending so that they can afford to buy the things they really want or need.
"They'll be set up for life if they start good habits now," she says. "But that means getting away from thinking we all have to have everything we want."
Not an easy idea to sell to a teenager Fletcher says the key is basic goal setting and budgeting. Whether you're 15 or 50, it's important to have short- and longer-term financial goals, and to decide which of each are the most important to you. The workbook encourages teenagers to write down their goals, along with what they'll cost and how much a week they can afford to save to achieve them. That brings a touch of discipline to the process. If young Samantha wants to go to the movies, but is also desperate for a new pair of shoes, she will have to weigh up the pleasure of the movie now versus the shoes later. Fletcher says basic budgeting and goal setting can help teenagers learn the difference between what they really want and what they can live without, and the difference between wants and needs. She says it doesn't matter what teenagers spend their money on. What's important is that they learn to prioritise their spending.
How can parents help?
Fletcher says leading by example is a good start. She says parents should also include their children in household financial decisions. Often, she says, parents want their children to have everything and will get themselves into debt - and financial strife - to make this happen. She says a better approach for the children is to talk to them about what the family can and cannot afford and involve them in household budgeting. If they feel partly responsible for how the family manages its limited finances, that's great preparation for managing their own money.
You don't have to burden your kids with all your financial woes, but Fletcher says there's no point in sheltering them either.
She says it's also important that young people be aware of what's involved in financial contracts. With many teenagers now having mobile phones and credit cards, it's easy to get in over their heads. She says she knows one financial adviser who gave his children Bankcards with a $500 limit when they were growing up. They could buy whatever they wanted on the card, but had to make the repayments themselves and could not exceed the $500 limit. The planner saw this as a low-cost way to teach them how to manage credit, and the children are now adults with their debts under control.
Parents wanting a copy of the Dollarsmart workbook can get one on CD with the latest issue of Money magazine, or download it from www.fpa.asn.au
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