Teens need money lesson

Coming up short on finances
By JEAN CHATZKY

It's important to teach teens about money.
As the mother of two children - neither of whom (thank goodness) have hit their teen years quite yet, I am keeping a list of those things my kids will have to know more about - or at least understand in a different way - than I did at their age.

There's Internet safety. A souped-up college application process. Sex (gulp). And money.

Today, I think I'll stick close to my comfort zone and focus on the last item.

Last week, the Charles Schwab Foundation released its annual survey on Teens and Money and it shows that although kids are acting financially, in many ways, as adults do, they don't have the appropriate knowledge to guide their behavior.

"Kids today are taking on more sophisticated money habits, yet they don't understand the implications," said Carrie Schwab Pomerantz, president of the Schwab Foundation. Six of 10 teens age 13 to 18 know how to write a check, the survey said. However, only four of 10 know how to balance a checkbook. This is a problem.

If your kids aren't tracking what they spend, they'll find their money flows through their fingers far too quickly.

Also, they'll find it's way too easy to withdraw more than they have and get swamped with overdraft charges. You can learn to balance a checkbook in a few hours. It's just simple math.

According to JA Worldwide (formerly known as Junior Achievement), 11% of teens have credit cards in their own name, and 6.2% of those 13 and 14 have their own plastic.

Teach them what interest is - the percentage of your purchases you pay for the privilege of borrowing money from the credit card company - and how quickly it can add up.

Kids also don't understand the fees and penalties that come with not paying their credit card bills on time or going over their spending limit, Pomerantz noted.

So, print out a few online credit card applications as examples. The required Schumer Box displays details such as the interest rates, late fees, penalty fees and grace period.

Warn against paying the minimum balance. For example, a $1,000 balance on a card with an 18% rate will take more than seven years and cost an extra $516 to pay off if you make minimum payments.

Tell your teen he or she will be 25 by then. That should hammer the message home.

Finally, explain how truly useless reward cards marketed to students tend to be. With a spending limit of $500, earning enough points for a plane ticket to use for spring break is tough - if not impossible - to do.

If you haven't started your teen on an allowance, I'd recommend it. Consider it an introduction to a paycheck, said Hollis Page Harman, author of "Money Sense for Kids" and president of kidsfinance.com.

The idea is to give your teen a part of the money you already spend on him or her along with some direction on what it's to be used for.

Harman recommends teaching your teen to save 10% of that allowance so it will seem natural to save the same amount of the first paycheck as well, to save 20% for bigger purchases to come later and live on the other 70%.

Then require your teen to pay for some of his or her recurring expenses, such as meals out or cell phone bills.

Make it clear that Google (and ebay and Yahoo, etc.) come along only once in a blue moon, but investing in the stock market is a good way to make money - and an important skill to have for their future.

Explain the value of diversification - of not putting all their eggs in one basket. But above all, stress consistency.

If you keep investing from your 20s until your 60s, come retirement, you'll be just fine. If you start when you're a teen, you'll be finer than fine.

If they can muster $100 a month - less than $25 a week - and put it into a brokerage account where they earn an 8% return, they'll have $350,000 40 years down the road. That's what most people can expect if they start this habit when they get their first job.

But what if they start 10 years earlier and invest the same $100 a month from age 15 to age 65? That little nest egg is worth $800,000. Their mouths will drop.

Finally, it's important to point out that it's not just what you say to your kids that matter, it's the behavior you model for them on a day-to-day basis.

A quarter of the teens surveyed by Schwab said their parents often lecture them about money, but then don't practice what they preach.

I've always felt that the most important money lesson you can teach your kids has much more to do with good parenting than good financial management.

Let them know that while you might like a BMW, a Honda will have to do. That'll make it easier for them to understand they can't have everything they want when they want it.

Jean Chatzky is the author of the best-selling book "Pay It Down!"

E-mail: personalfinance@nydailynews.com