Teens Need Wisdom to Match Wealth

Clothing, dates, records - plus saving for college, or a car....

Being a teenager in the consumer-driven world of the 1990s can be daunting, if just for the whopping expenses.

Young people have always faced heavy financial demands as they reached maturity. The difference today, financial experts say, is the sheer diversity of the choices, few of them inexpensive.

And that makes it more important than ever for young people to become skilled in money management, says Paula Hogan, a financial planner at Hogan Financial Management in Milwaukee.

Parents, as well, often struggle to know how to handle teenage money challenges.

"I'm afraid that our solution has always been, 'If you need the money, we'll find a way to get it for you,' " laughs one New York area mother, referring to two adult children and two grandchildren.

"I don't think that's the best way to deal with this issue," she says.

Researchers agree.

Increasingly, young people as early as preschool age call some of the financial shots in their households, says James McNeal, a marketing professor at Texas A&M University in College Station.

He commends parents for including children in family decisions, such as buying a car or a TV set. But he says young people often don't take on the responsibility - such as sound management of their own finances - that should accompany such decisions.

And for all their grumbling, most teenagers are far from poor. According to the Rand Youth Poll, teenagers spent an astounding $84 billion in 1997, up 12 percent from 1996. That works out to more than $3,000 per teenager in the United States. The money comes from a mix of earnings, allowances, and gifts.

The lack of preparation may show up in one trend: Increasingly, children stay on at the family homestead after they leave school rather than heading out into the world on their own, says Ms. Hogan.

This may stem in part from high housing costs, she says. But Hogan also sees a somewhat unhealthy cultural shift away from self-sufficiency.

To help set teenage children on a sound course, experts recommend the following broad steps, in addition to helping them learn about saving and investing:

1. It's about choices. "Discuss the importance of making sound choices" with your teenager, says Michael Wilson of the College for Financial Planning in Denver. Help them consider costs, the degree to which a decision benefits more than just one person, and the quality of the product, if goods are involved. Also, encourage the teenager to be more analytical about advertising. Ads can be useful but misleading.

2. Communicate. Parents should listen to what young people say about their financial concerns. Granted, teenagers can be secretive and proud, but being aware of the challenges is a first step toward solving them.

3. Bank on it. Teens should, if possible have checking and savings accounts. Many banks offer low-cost checking. In some cases, parents set up a joint account with their kids.

4. Credit where it's due. Encourage the teenager to get a credit card at about age 18. Meeting monthly payments helps their credit. But warn against too much debt.

5. Read and reap. Encourage them to scan newspaper business pages - especially young girls, since studies show boys tend to be more oriented toward money matters.

Tips For Parents

Teens may have short-term goals, but parents can still encourage and assist with long-term savings. Here's how:

* Provide hands-on experience managing investments, with your help. It could be a real account with stocks, bonds, or mutual funds. Or it could be a hypothetical account that you follow using a newspaper or the Internet. Marketplayer (www.marketplayer.com), one of many sites where you can track a play-money portfolio, also offers stock-picking games.

* Open up your investments to their participation. With stocks, you might pick a company that the young person will find interesting - maybe an auto stock or a film company.

* Have the teenager open an individual retirement account with a broker or mutual-fund firm (ask for advice on different types of IRAs). It offers long-term tax savings and can be used for college, a first home, and retirement. The child can be any age, but the money must come from employment income. If the child needs the money for current expenses, reimburse the savings with a gift. The child must file a federal tax form, but probably will not have to pay taxes.

* Open a custodial account for the child through your broker or mutual-fund company. Or set up a trust by consulting an experienced trust attorney.

The Basics

Investing

Investing may sound complex, but the concept is simple. It means putting money somewhere - generally stocks or bonds - to make a profit.

Generally, investors expect (and get) higher profits from stocks than from bonds, but stocks also mean greater risk - a key element of investing.

By the time kids become teenagers, they're ready and often eager to learn about investing. The prospect of more money without more chores is compelling.

And whatever they learn about savings and investing now will start them on the road to responsible money management when they become adults.