How to save your kids from joining Generation Debt


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It's too easy for today's teens to get into a cycle of spending and debt.

There are so many things vying for their money - mobiles, the latest technology, clothes, going out. By the time they get to university, they can also access credit cards, personal loans and student loans.

According to Andrew Lendnal in his book Gold Start, the highly educated generation of 20-somethings doesn't know a lot about money but likes to spend it. When these young adults finish university they often have $20,000 worth of debt. But that doesn't stop them from borrowing another $10,000 or $20,000 to buy a car.

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How do you save your kids from becoming victims of "generation debt", a term coined by author Anya Kamenetz?

It's best for parents to start early and keep kids actively engaged about managing money until they are adults. Lendnal says his family didn't talk about money when he was growing up but he has formed a comprehensive timetable to help kids grow into financially responsible adults.

The key is talking to kids about money from as young as three or as soon as they ask "buy me this". The more you talk, Lendnal says, the sooner your kids will understand why they can't have everything they want. Parents need to teach them to defer their gratification and save up.

The next step is helping them work out how to track down the best deal. Along the way, they need to avoid debt and - as they get older - learn the value of having some investments. Here are Lendnal's steps for parents:

From three to five years: Introduce your kids to games with play money and teach them the different coins and notes when you go shopping.

Six to eight years: Start a monthly allowance. Give them regular chores and set a savings amount. Make a game of looking for marked-down prices.

Nine to 12 years: Help them set short-term goals and save towards them. Let them earn extra money. They will want to borrow money, but make a point of charging interest. Have them do extra jobs around the house to pay off the loan. Don't let them withdraw money from their long-term savings account. Take them to the sales and see the marked down prices.

Twelve and up: This is a tricky time because kids desire independence. Their social life becomes costly and they are influenced by their peers. Lendnal advises helping them distinguish between wants and needs when making purchases.

Gold Start by Andrew Lendnal. RRP $29.99 Published by Exisle.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.