- The Washington Times - Tuesday, February 27, 2001

Miguel Luina, 17, didn't understand a lot about financial management until this year. The teen now handles his family's finances.

Miguel's father, who works for the U.S. Agency for International Development, was assigned to Bolivia. His mother travels there intermittently while her son is finishing his senior year at Reston's South Lakes High School.

"They give me money in my account; I pay all the bills and keep all the records. It's a great experience," Miguel says. "I didn't know all the things you had to do before this year. I had no idea. I didn't know you could pay the full amount or the minimum on the credit card."

Like Miguel, today's 31 million teen-agers (ages 12 to 19) control a projected $155 billion in consumer spending both discretionary and shopping for the family, according to a fall 2000 survey conducted by Teenage Research Unlimited, a marketing-research firm based in Northbrook, Ill.

Michael Wood, vice president of the company, says the firm surveyed 2,000 teens nationwide, and the random sample was in direct proportion to the U.S. population in terms of age, ethnicity and gender.

Teens spend an average of $84 a week, 13 percent of teens have their own credit cards, and 11 percent have access to their parents' credit cards, the survey found.

A 1999 nationwide survey titled "Youth and Money" by the American Savings Education Council (ASEC) found that 33 percent of students ages 16 to 22 have a credit card and that 9 percent are rolling over credit-card debt each month. The ASEC, a District-based nonprofit organization, surveyed a random sample of 1,000 teens ages 16 to 22.

Unleashing the type of financial power found in the survey can have consequences if teens are not properly prepared. The "Youth and Money" survey found that 94 percent of students surveyed turn to their parents for financial advice. What can parents do to educate their teens about handling money before they go off to college or to work?

Checking account

Teens should get a checking account before leaving home, says Janet Bodnar, executive editor at Kiplinger's Personal Finance magazine, author of several books and a syndicated columnist who writes under the name Dr. Tightwad.

"I did this last summer with my oldest son, [John]. At 17, we opened up a checking account for him. I got him a debit card to deposit paychecks and to take money out. I wanted him to be able to keep a check register," Ms. Bodnar says.

Like many teens, Miguel has had a checking account for two years. He says he learned about finances from his parents.

Miguel's best friend, Brendan Karry, 17, and also a senior at South Lakes High School, says he learned about finances from his mother and took an accounting course in school.

"I thought it was really helpful. It taught me the necessity of keeping a balanced checkbook," he says. Miguel didn't take that course.

Brendan had a checking account for several years but has just closed it because it involved too many bank fees. He has had a savings account since he was 10.

"I really think that kids need to have the experience of managing hard currency and know when they have to cough up their own money to buy something," Ms. Bodnar says. "I notice with my son it made an impression on him when he had to subtract checks on his account that he had written. We made him pay for his senior class trip. Every time he had to write a check for it, it made an impression."

Managing cash

Brendan's mother gives him a lump sum and a budget for school shopping to use at his discretion.

"That teaches me to find sales," Brendan says.

"I think nothing substitutes for putting the money on the counter and having the hole in the pocket," Ms. Bodnar says.

John Solker, a senior at Gonzaga High School in the District, says his mom is smart and has taught him about money. The 17-year-old teen from Bethesda shops at Wal-Mart and looks for clothes that don't cost too much.

"Usually, we go around and find bargains. We probably don't spend more than $100 total," John says.

Allowances

The "Youth and Money" survey found that 39 percent of students receive money from their parents on a regular basis.

Don Blandin, president of ASEC, says an allowance provides an opportunity to discuss the value of money with children. It also can be used to teach children that if they want something, they have to learn to save.

"It's a good teaching tool and gives the child responsibility. I am on the high side of the allowance. They have to learn what their budget is and how to spend the money," Mr. Blandin says.

The parent needs to say, "Here are the things I am no longer paying for," he says.

His son, Devon, 12, and daughter Sara, 10, scrutinize his expenses and also are starting to avoid expenses, Mr. Blandin says.

Sara was saving for something and decided she didn't want it.

"Her main concern was that she had this $23 in small bills, 'So I would like to get this in the bank so it makes some interest,' " Mr. Blandin recalls her saying.

Mr. Blandin says parents should encourage children to learn about money at a young age.

"When they make a few mistakes on their own with $20 to $30, it's a better lesson than later on," he says.

Ms. Bodnar says teens should get an allowance of $20 to $25 a week.

"That allowance needs to be expanded to include a clothing allowance so they are learning to manage several hundred dollars at a time," she says. "Don't just give them the money go on a shopping trip and compare prices at a number of stores so they can see how much things cost. It's really critical for them to get experience in managing large amounts of money."

Christine Weaver, 18, a college freshman at Colorado State University in Fort Collins, left school for medical reasons and moved back home. The Bethesda teen plans to attend the University of Maryland in the fall. She received an allowance of $200 a month for groceries and miscellaneous items while she was away at college. In high school, her parents provided a $20-a-week allowance for weekend entertainment.

"It was pretty much fun money," she says, regarding the $20 allowance. "If I knew I wasn't going to need it for the week, I would save it."

Should parents provide an allowance, or should teens work?

"I think the allowance concept should continue until there is an ability to have the teen earn money on a regular basis without interfering with their studies," Mr. Blandin says.

He adds this caveat, however: "With an allowance comes responsibility, and that responsibility needs to be taught at an early age."

Credit cards

"My parents don't think I should have a credit card," Brendan says. "Actually, my mom gave me a credit card for a month last summer and promptly took it away. I became a compulsive shopper. It's like play money."

Brendan says he will get a credit card in college to establish good credit and then send it home.

"My mom won't bail me out, so I have to be very careful when I go to college," he says.

Miguel has a credit card in his dad's name.

"The only reason my parents use credit cards is to gain [air miles granted by the card company for purchases made on the card]. I am not allowed to use it unless I ask for permission," he says.

"I think a credit card is too much responsibility to lay on a kid," Ms. Bodnar says. "I would strongly encourage parents not to get credit cards for teens until at least after their freshman year in college."

The mother of three says teens need to know how to manage cash first.

"I have met so many twentysomething kids who have said to me, 'The best thing I ever did was not to get a credit card when I was in college,' " Ms. Bodnar says, adding that she also has met many students who said the worst thing they ever did was get a credit card.

Mr. Blandin says he isn't opposed to a teen having a credit card.

"They should have already demonstrated responsibility for managing cash," he says, although he adds, "My preference would be the debit card over the credit card."

Ric Edelman of Fairfax a fee-based financial planner, author, lecturer and radio personality says the advantage of a credit card is that it allows the child not to have to carry cash, provides a paper trail and teaches a child how credit works. But, he adds, "I regard a credit card the same as a handgun. If you understand it, it's a fine tool, but in the wrong hands, it can be deadly."

Mr. Edelman says the average amount of debt among college students is $1,400, and a great many students get themselves in trouble because they don't understand how credit cards work.

Christine says her parents did get her a credit card with a $250 limit, which was to be used for emergencies and gas when she was at college.

"I know it's not just free money. It's going to have to be paid back," she says. "You can get yourself into a lot of trouble, and that's not something I am trying to do just starting out in college."

John, the Bethesda teen, says his grandmother has a credit card that she gives him to use for long trips.

"It's not something I get to break out. It's just for emergencies," he says, adding that his mother explained to him how credit cards work and "how they rip you off."

Savings and investments

All of the teens interviewed for this article have savings accounts ranging from several hundred dollars up to $1,000. They all understood the principle of compound interest.

John was the only one who knew the Rule of 72, which is the amount of time it takes for money to double based on the rate of interest being paid. For example, at 9 percent interest divided into 72, it would take 8 years for money to double.

Miguel, Brendan and John will use a portion of their savings to pay for their high school prom. Each of the boys will pay for dinner and prom tickets for their dates. Beyond that, the teens are saving for college expenses.

"I have an investment [account] set up through Charles Schwab in my mom's name," Brendan says. "I do some on-line trading. It's all her money, and I am doing it for her," he says.

Brendan has read "The Motley Fool's Guide to Trading" and says he has always been into investing. He researches companies and is into "the high-tech stuff."

"About three years ago, when I learned about this company, I bought it at $28 a share, and it went up to $90 a share. That was my first big gain," he says excitedly. "At first I was, like, going to get all this money and then it's, like, where did all my money go?"

Mr. Blandin says he had an opportunity this year to show his children about investing. Both children have a mutual-fund account. Several years ago, the fund was making 36 percent. Last year, it made 12 percent, he says.

"This is the first year we got to sit down and talk about why they lost money. Then the discussion was, what do you do about that?" Mr. Blandin says.

He told his children that in some cases, this is an opportunity to buy more stock. If this is for college and you have six to eight more years, you aren't worried about the short term you are a long-term investor.

Like Mr. Blandin, parents are the principal source of information on money matters for their children.

John says he already has begun thanking his mom for the financial education he has received.

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