Student loans, tuition debts, card balances, the last thing parents want is for their young adult children to find themselves buried in financial burdens that they cannot manage.
The warning signs are there, but how many youngsters really bother to read what the daily headlines are telling them?
A great deal of financial problems are due to the recklessness of individuals. We are emerging from a ‘me, me, me’ society, in which we have gratified every desire by throwing borrowed money at it. And people now find themselves in the terrifying situation of having a mountain of personal debt, which has to be paid off, whilst maintaining as normal a lifestyle as possible. Some of these people will get stuck in and spend the most of their working lives servicing loans and interests. Short of a lottery win, they will find that most of the money they earn each month, in effect, go to creditors.
Lessons have been learned, fingers have been burned — now is the time to take our teenagers to one side, and make sure they understand the real world they are about to step into.
Some schools or organisations run financial awareness classes for young students, which are great. In most countries, from the age of 18, teenagers will be bombarded with unsolicited invitations to take out credit cards and credit lines. They will be tempted by all the material goods that are suddenly available to anyone with the means to pay; for many young people, especially those in further education, their only way of funding their purchases will be through credit. They will have little experience of finance, and will probably have taken scant notice of their parents’ handling of money.
Unless parents guide their youngsters through the minefield that is personal finance, they may find that they are helping to pick up the pieces long after things have started to go wrong.
Many students today have savings accounts that may well have been opened when they were just babies-in-arm, and they will probably have been involved in the accumulation of the account, with their parents’ help. Cash or cheques, given to them as birthday or Christmas presents, will have been paid into the accounts, so they will have some idea that their money is not only safe, but is also earning interest for them.
Letting them manage a simple straightforward savings account will teach them some of the basics and virtues of savings.
When a young person is old enough to open his own bank account, he will need to know how it operates – how funds are paid in, how they are withdrawn, and, most importantly, how to keep the account in credit. Forewarning him about the costs and penalties of becoming overdrawn, will be a useful lesson. It will also be fun and helpful to help them learn about special deposit accounts such as the step-up interest account, which have become more and more popular in recent years. There is a lot to learn about interest rates, which can vary considerably depending on the type of account used, and the way it is administered. Do not assume they already knew all these, because most don’t.
Teaching a youngster how to look after his money and the dangers of credit, from an early age, will go a long way toward keeping him financially healthy as an adult. Leaving him to learn his own lessons, in a complicated world, may lead to a lifetime of anxiety, missed opportunities, and hard financial setbacks.