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By Su Moran

From The Asian Reporter, V18, #19 (May 6, 2008), page 7 & 28.

By Su Moran

Wells Fargo

Want to get a teenager’s attention about money smarts? Here’s a surefire conversation starter. Ask the teen: "What will you do with your million dollars?"

Yes, "your" million. It’s very likely that a teenager’s lifetime earnings will total more than $1 million, and quite possibly a lot more.

Do the math. Let’s say that at age 25 a daughter or son begins a job earning $30,000 a year. At that rate, they’ll have pulled in $1.2 million by age 65. Factor in salary increases over the years, and the numbers really can grow.

Now that they’re paying attention, get them started on the road to financial savvy and security. It’s particularly important to start early because many U.S. teens have access to significant dollars.

According to market research firm Packaged Facts, 12 to 14 year olds have an average annual income of $2,167, while teens age 15 to 17 have an average annual income of $4,023 — most of it coming from allowances, gifts, and part-time jobs.

The earlier young people learn to manage those dollars, the better equipped they’ll be to become financially successful adults.

In the 2005-2006 national financial literacy survey of high school seniors by the Jump$tart Coalition for Personal Financial Literacy, teenagers were able to answer just 52 percent of the survey questions correctly. Before these young people move from high school to college and into the workforce — and reach the age of legal responsibility for their own finances — it’s essential they attain these skills.

Without a solid grounding in personal finances, many young people will learn about money from the school of hard knocks.

A banking account — one that allows teens to practice basic money management skills while providing parents with oversight and control — is a great vehicle for that learning.

Ask a financial services provider if it offers a banking account for teens, in addition to traditional savings accounts. The account should provide significant parental controls while allowing the teen to learn how to manage the responsibilities and benefit from the convenience of having the account.

And ask financial services providers if they offer other tools that help teach money management skills to children.

What else can children be taught to prepare them for financial success in the "real" world? Here are a few suggestions:

• Start with account basics. Teach teens how to make deposits and withdrawals, keep an account register, and balance the account. Make sure he or she understands that ATMs don’t dispense "free" money.
• Encourage saving. Give allowances in denominations that make it easy to save. For example, if a child’s allowance is $20, give it in four $5 bills so there’s one to put into savings. Help the teen calculate the interest on the account and see how compound interest makes savings grow faster.
• Include teens in discussions about family finances. Let them know personal money values and make sure they understand the relationship between earning and spending money. While they don’t need to know precisely how much money the family earns, teens do need a general understanding of family income and expenses. Allow them to express their opinions on family financial goals such as vacations and purchasing a home, car, or other big-ticket items.
• Help teens set financial goals. Ask him or her to draw up a "want" list, and then organize the list into immediate, short-term, and long-term goals. This will help a teen learn that saving is necessary in order to meet some goals. Together, develop a budget that includes amounts for spending, saving, and sharing.
• Let children spend some money. Sure, they will make mistakes. They also will learn about making choices, setting priorities, and distinguishing between needs and wants. With guidance, they can learn to compare price, quality, and value. They also may learn that money can slip away almost unnoticed unless spending is tracked.
• Teach teens how credit and borrowing work. Help them calculate how much buying on credit adds to the total cost of an item. Make sure they understand that credit is earned through responsible money management.
• Encourage sharing. Teach teens to set aside a percentage of their money for giving. Visit local museums, zoos, botanical gardens, food banks, and other nonprofits, and let them decide which will be their "cause."

A teen’s financial security as an adult is at stake. By starting early, teens can develop good financial habits that will last a lifetime.

• According to a 2006 study of high school seniors, only 16 percent have taken a course in money management or personal finance. (Jump$tart Coalition)
• A poll of people in their 20s found that 60 percent feel they’re facing tougher financial pressures than young people in previous generations. (USA Today and the National Endowment for Financial Education)
• The average amount of student loan debt rose from $12,393 in 2001 to $14,379 in 2006. (Experian)
• Four in 10 high school seniors believe that credit cards and car loans have lower interest rates than mortgage loans. (Jump$tart Coalition)