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An estimated one out of every ten teens now uses credit cards. That trend is growing, and experts say that unless kids learn to keep their spending habits in check, they can quickly create mountains of debt for themselves and their families.

Ryan Mulkeen learned about investing and saving early. A middle school project on the stock market sparked his interest. During his pre-teen years, he became directly involved in a mutual fund that his dad opened for him.

“And I eventually parlayed it into funding my undergraduate education,” says Ryan, who is now 22.

While Ryan has profited from his investments, he’s also seen how quickly his friends have burned through money – by relying on checks and credit cards.

“If you want something on the computer you can just type in a credit card number and zoom!” he says. “And it’s so out-of-body, it’s like the ‘magical plastic’ that’s just…it’s not a tangible thing. There are no consequences – or seemingly, no consequences – to using that all the time.”

Many parents are not controlling their kids’ spending patterns. The result is often big bills, that mom or dad has to pay.

Charles DeNormandie, a certified financial planner, is familiar with the problem.

“Within my clientele, I’ve actually seen scenarios where parents, by bailing their kids out, have drastically reduced the likelihood of retiring at maybe an early age – or maybe even a normal age,” he says.

Experts say parents need to closely watch their teen’s spending habits – but to also let their child see for themselves, by using money from their own jobs, the power of saving and investing.

“I think the key ingredient is to pay yourself first,” says DeNormandie. “If you will take ten dollars a week or 25 dollars a week and sock that away into an investment vehicle, you don’t have to do that over the whole year. You could do it over a three-month period, and it’s still going to add up to a tremendous amount of money.”

For his part, Ryan has learned what many teens haven’t – financial self-restraint.

“You don’t need the next DVD or you don’t need the next CD as much as you think you do at the time,” he advises. “I wish I could go back and if I had still wanted it, maybe I would have waited to get something I wanted, on sale.”

What We Need To Know

• Many teens get into credit card debt problems right after high school. Help them remember the difference between what they need, and what they want. Teach them to watch their spending habits, to not charge items that are not essential – and to plan to pay off their credit card debt every month. (Washington State Office of the Attorney General)




• Kids need to learn to manage their expenses, so they don’t go over their income. Advise them to start saving early, to take advantage of compound interest; to watch out for collecting too many credit cards and using them for borrowing – and to honor their debts and financial obligations. (Institute of Consumer Financial Education)




• Opening a Roth IRA is a good way to help your kids start saving towards their retirement. As the name implies, a Roth IRA is an Individual Retirement Plan. Like a traditional IRA, it helps you set aside money for later in life. But contributions to a Roth IRA are already taxed – so that withdrawals from the account (that meet certain rules and requirements) are tax-free. (Charles DeNormandie, Certified Financial Planner)




• Involve your children in investment decisions that affect their future. It’s an opportunity for you to educate them on the benefits of saving. As an incentive, some parents also match funds that their children put into savings for their education. (FinAid)

Resources

• Federal Citizen Information Center
• U.S. Securities and Exchange Commission

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