by Ann Druce

Created on: July 26, 2008

Far too many adults are simply incapable of managing their finances. Otherwise intelligent people, many of whom hold down responsible jobs and present the face of control and competence to the outside world, are making financial choices that leave them stressed and panicked. Escalating debt, often on several credit cards, is an all too common feature of modern life.

The reality is that money-management is a learned skill. If teenagers are given no responsibility for their own money, it is somewhat unrealistic to expect them to know how to manage their finances as soon as they leave home or start working. Teenagers who have all their expenses taken care of by their parents have no opportunity to make financial mistakes in a protected environment. If, on the other hand, you give your teenager an allowance, agreeing exactly what this should cover, she can learn how to live within her means.

You could, for example, agree that the allowance should cover all entertainment with friends though they are not expected to pay their own way when they accompany you on a family outing. You might agree that it will cover all clothing, or presents for friends and family. You will have to do some planning and research to come up with a realistic number that suits your circumstances, but no matter what your resources, the principle holds true.

Your teenager will soon learn that if she is too extravagant with her entertainment that she has no money for the latest must-have accessory. And that is a lesson well learnt. It won't kill her to have to go without that trendy sweater! And later in life she will understand that if she goes out to too many expensive restaurants, she won't be able to pay the rent.

Whether you give your teenager a credit card should not be the issue. The issue should be to make her responsible for all the charges to that credit card. You can arrange a monthly limit to match your agreed allowance giving your teenager all the advantages of a credit card with the life-lesson of spending within a specified budget.

Credit cards are fantastic. They are convenient, you don't have to carry cash and they can give you flexibility in your budget. And you can give your teenager the opportunity to learn how to manage a credit card in an environment that limits the risk of overspending and teaches that money is not in limitless supply and that monthly bills have to be paid.

At the same time, however, you can give her the same status as her more indulged friends, and that sense of belonging and conforming that is so important to teenagers.

The alternative might be to deposit the allowance into a debit card. But either way, by allowing your teenager to control her own finances, you will equip her with critical life skills. You can guide your teenager now so that, as an adult, she is able to manage her money, taking advantage of the all that a credit card has to offer, but protecting her from the trap of credit card debt.

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