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How kids can avoid the debt trap

By Gillian Bullock

Prepaid mobile phones, putting loose change in a jar at the end of the day, using lay-by instead of credit and identifying savings goals are just some of the things teenagers should be taught so they avoid facing debt problems later in life, reports Gillian Bullock.

The Australian Securities and Investments Commission (ASIC) has called on parents to educate their children about the value of money.

"Children need to understand that money is a limited resource and does not simply materialise from holes in the wall or from credit cards," says Professor Berna Collier, ASIC commissioner. "These days children are under enormous pressure to have the right stuff, but rather than simply giving in to persistent demands for the latest gadgets, parents could take the opportunity to encourage their children to work out ways they can save up for the items they want."

The dangers of not teaching teenagers how to cope with money are spelt out in a free comic that ASIC has produced about money matters for 14 to 18 year olds, called To the Max.

The comic shows what happens when you use your credit "to the max", run up huge bills by having the latest mobile phone and taking out a loan to finance wheels.

ASIC suggests that teenagers should be encouraged to:

• Use lay-by as an alternative to credit.
  
  
• Control impulse buying.
  
  
• Use prepaid cards for mobile phones.
  
  
• Identify savings goals and save regularly to achieve them.
  
  
• Put loose change in a savings jar each day.

The corporate watchdog is not the only institution encouraging financial literacy among teenagers.

Many of the banks also promote financial education through newsletters and other programs. The Commonwealth Bank, for instance, provides grants to secondary schools across Australia to develop and improve financial literacy skills, awareness and understanding. The bank's connection with young Australians goes back to the introduction of its school banking program back in 1931.

And Westpac runs Financial First Steps workshops covering such topics as budgeting, saving, compound interest, risk and spending.

As part of the active encouragement of young Australians to become more financially knowledgeable, most banks offer free banking to people under 18 and full-time students. However, it's important if you have turned 18 to advise your financial institution if you are still a student. Their computer merely advises them of your eighteenth birthday; it doesn't tell them what you are doing with your life!