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Tempting credit card offer? How young people can avoid pitfalls

When Laura van Vlaardingen opens her mailbox, it’s not unusual to find a “pre-approved” credit card promising as much as $10,000 in credit inside.

Like many students, Ms. van Vlaardingen, 27, who is studying for a bachelor of business administration at St. Lawrence College in Kingston, is a target for credit card companies. But unlike many students, she knows that such tempting offers come with a significant catch.

As a volunteer for Manage Your Money, a program run by Enactus St. Lawrence College, a student-run leadership development organization, Ms. van Vlaardingen manages a team that teaches young people at her college and in the wider community the principles of credit, saving, investment and debt. She allows that she’s “never been the greatest with my own personal finances,” but she’s learned – and tells other young people – the dangers of credit cards.

“Most students don’t fully understand what they’re signing up for,” she says. “They can get into serious problems.”

The seminars that Ms. van Vlaardingen teaches are among a range of financial literacy programs that help young people focus on money lessons.

A new Ontario government program being piloted in some of the province’s high schools will give students in the Grade 10 career studies course a module on financial literacy. (The new course is expected to be in place for the fall of 2018.) However, experts say money lessons should continue throughout the teens and early 20s.

It’s never too early or too late to help children learn about money, says Rob McGavin, managing director of the financial planning and insurance advisory for Scotia Wealth Management.

“Teachable moments for kids can start at a fairly young age – when they receive money for birthday gifts, get an allowance or have a part-time job and are generating an income,” he says. They should divide such funds into portions to save, spend and give away to charity.

“The earlier you start, the more you can take advantage of some key principles. Time is the biggest one,” Mr. McGavin says, with kids learning the power of compounding. “It can be exciting to show them you can double your money if you keep money invested over time.”

Talk With Our Kids About Money, a program created by the Canadian Foundation for Economic Education (CFEE) and supported by the Bank of Nova Scotia, assists parents and guardians in the lessons. It culminates in Talk With Our Kids About Money Day, this year held on April 19, involving thousands of schools across the country.

“Talking about money is the first step to improving financial capability – and enabling young Canadians to undertake their financial decisions and actions with confidence and competence,” Mr. McGavin says.

A CFEE survey of 6,000 Canadian youth last November found that the top three sources of financial education for young Canadians are home, school and knowledgeable guests at school. The top four challenges youth face are earning money, saving money, “wanting things I can’t afford” and “buying things I don’t really need,” the survey found.

Tricia Barry, founder and executive director of Money School Canada, a financial-literacy education firm, holds workshops tailored to helping parents get their kids off on the right foot financially. Ms. Barry is pleased that the Ontario government is taking steps to bring financial literacy to the classroom, but she’d like to see more than a portion of a half-credit course dedicated to it.

It’s also still vitally important for parents to tackle financial matters with their kids, she says. “The best way to teach kids about money is to give them some,” she advises, although rather than an allowance she recommends that parents give their children money that allows them to do what they need to do. These are funds for specific purposes, such as paying for school lunches or the cellphone bill.

Ms. Barry says parents should also teach their children to ask questions about money, encourage them to budget and keep track of spending and talk to them about credit. Many kids get into trouble with credit cards because they consider them “a way to pay later,” she says. Young people graduating from university can be denied jobs when prospective employers do credit checks and discover terrible credit ratings.

“The consequences can be so great,” Ms. Barry warns.

​​Lisha​ Van Nieuwenhove, a mother of three girls aged 17, 15 and 11 who lives outside of Port Perry, Ont., and recently attended a Money School Canada seminar, says that finances can be “a terribly scary place” and need to be tackled. “My parents taught me next to nothing regarding money, because it was so ‘taboo.’ School taught me nothing. Life, unfortunately, taught me lots – a lot too late.”

Personal finances are “intimidating, overwhelming and not an easy world to crack,” Ms. Van Nieuwenhove says. “Money and its management … should be logical and as commonplace as figuring out what to have for dinner. And the earlier an age that it can start, the healthier a relationship with money is going to be.”

Susan Stefura, a principal at Bespoke Financial Consulting Inc., a fee-only financial planning firm in Toronto, says the high school years “are a great time to become more financially aware. … Financial knowledge and behaviours that you instill at this stage are for life.”

Ms. Stefura is trying to educate her own kids, who are 22 and 18, “in all things financial,” and notes that when children are just starting to earn money is a good time to really focus on bank accounts, budgeting, savings and income taxes.

“Having your own money to manage is what makes it real; until then, I think it’s hard for money lessons to really sink in,” she says, noting that the topic of financial literacy comes up in estate-planning engagements with her clients.

“We often talk about passing money down to the next generation,” she says. “In many cases, parents are hesitant to do that, because they don’t think their children will handle the money responsibly.”

She says some of the most important lessons for young people include living within their means, staying on top of cash management and allocating after-tax dollars to their needs, she says. “The other important thing for young people to know is that credit cards can be a trap, unless they’re managed responsibly.”

Parents “can be great teachers of money lessons; they can really help their kids by teaching them everything they’ve learned over the years – good and bad,” she says. “Parents can also engage their own financial advisors to help educate their kids. Some financial institutions now have programs for this very purpose. One bank brought in a comedian to talk to teens about money.”

Mr. McGavin says that once young people are earning and saving money, it’s most important to learn about diversifying their investments and risk allocation, setting short, medium and long-term goals and putting aside money for things that are important, even retirement. “It’s such a long time horizon, but it isn’t too early to start,” he adds.

Editor’s Note: An earlier version of this story misstated the name of the student-run leadership development organization; it is Enactus St. Lawrence College, not Enactus Canada. Also, Laura van Vlaardingen does not teach the Manage Your Money program but manages the team that runs it.


Special to The Globe and Mail (includes correction)
Published Monday, Jul. 10, 2017 7:00PM EDT
Last updated Tuesday, Jul. 11, 2017 6:22PM EDT

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