Teenagers' brains and money don't mix well. When some teenagers get their hands on the money in their bank accounts, they spend the lot in one fell swoop.
At some point during the teenage years parents lose control of their offsprings' banking. It's part of the process of handing over more and more responsibility to our teens.
Money equals freedom for teenagers. Some relish the idea of saving up for something of note such as a skateboard or bike, says Grant Gilbert, branch banking general manager at the ASB. Others want the power to buy consumer goods and junk food that an eftpos card gives them.
Whether teenagers are spenders or savers, it's essential to learn banking skills and parents have to step back and let them fail.
If you haven't already, the early teens are the time to take your offspring to the bank and help them open an account in their own name, or transfer ownership of their childhood savings account to them. Many children get their first eftpos card at this age as well, says Gilbert.
The University of Waikato tested the financial literacy of more than 300 students at Hamilton secondary schools. It showed that the longer teens had held a bank account the more financially literate they were, says co-author Michael Cameron, a senior lecturer in economics.
Gilbert says more than 50 per cent of 13-year-olds with accounts at the ASB also have an eftpos card. Older teens who want to buy online will often have debit cards as well or instead of the eftpos card. Debit cards do have annual fees, which is something the parent needs to discuss with the child.
Cameron cites studies in the US suggesting that teenagers who use ATM (eftpos) cards to both spend and withdraw cash have better financial literacy than those who don't.
At the ASB they can get their own eftpos, debit and credit cards at the age of 18, says Gilbert. Before that age a parent must sign guarantees.
Early teen years are also a good age to tie a budget to the bank balance, says John Cowan, creative director at the Parenting Place. When Cowan's children hit secondary school they were given budgets.
His son made some "great steaming mistakes". The boy spent all his budget on a single pair of shoes that cost more than Cowan senior's first car. Cowan "let the consequences bite". "That was more affecting than any nagging - although nagging was also necessary," he says.
Cowan also matched everything they saved over $30 for approved purchases. Often it was money he may have spent anyway, but it taught the teens the power of saving far more effectively than 3 per cent interest from the bank would.
I had to overcome fear of letting my kids loose on their bank accounts. I was nervous, unjustifiably my children tell me, that they would squander their money frivolously. Sooner or later it has to be done, however, and leave it too late and the children leave school with a financial handicap.
It's not just about giving them freedom. Teenagers' experience with managing their own finances is an important factor associated with financial literacy, says Cameron.
Bart Frijns, director of AUT's Centre for Financial Research, says that children learn more about money by setting up and using a bank account than they do in a general education programme on savings.
Parental fear isn't entirely irrational. There is no "banking module" in the human brain, says Marc Wilson, associate professor of psychology at Victoria University.
What's more, as I'm always telling my children, the frontal lobes of teenagers' brains aren't fully developed and won't be until they're in their 20s.
This lack of frontal lobes, says Wilson, means that decisions may not be made on the basis of a considered process. At the extreme teenagers may not even realise there is a decision to be made at all, he says.
This doesn't mean teens can't or shouldn't be trusted with money, he says. "Just that there are reasons to think their way of thinking about money may be less mature."
It also doesn't mean they shouldn't be given the chance.
"Adolescence is a key time for young 'uns to learn about banking, for the same reasons that it's a key time to learn about anything," he says. "When we learn new things, pathways in the brain are strengthened as they're involved."
When I gave my children eftpos cards it was with quaking boots. I've read too many cases on the Banking Ombudsman's files of children emptying their bank accounts as soon as they get access to them.
The Banking Ombudsman has seen some horrendous cases, which I recounted to my children. One teenage boy, influenced by friends, had withdrawn $1400 from an account that he didn't have signing authority for and bought a car despite not having a licence.
The son let his friends drive the car. Lo and behold the car was written off after an accident.
It's not unusual for teens to empty their bank accounts as soon as they get access to them. When I engaged in an impromptu discussion about my children's banking needs with my local ASB branch, the teller said she'd seen many cases of it.
A young member of staff later gave my children some useful advice: never tell your friends, she said, that you have money on your eftpos card. Otherwise those friends will be getting you to "just" buy them this or that at the tuck shop.
Such sums are seldom paid back and some children will be taken advantage of by their friends over and over again.
That led to a conversation about honour and dishonour fees. Reader Mike Hayes posted a comment after reading one of my articles online in 2012 that his 17-year-old son set up a monthly automatic payment that failed over and over again until he owed the bank $175 in fees.
My children were made to sign contracts with me that said for as long as they are receiving pocket money or an allowance from me they must show me their bank statements when requested. Possibly a bit over the top - although Cowan doesn't think so. He says with teenage bank accounts in mind it's essential to:
Keep them accountable
Allow them to experience consequences and
Make your home resemble the world they are going to have to survive in.
When my teenagers were let loose on their accounts we needed some way to split short-term spending money from medium-term savings. The 10 per cent of their income that goes to long term savings is being deposited into KiwiSaver.
Many teenagers have two accounts, says Gilbert: a transactional account for their eftpos or debit card, and a savings account.
Behavioural economics studies have shown that making it harder to spend has a big impact, says Cameron.
A number of organisations such as the ASB GetWise and the BNZ sponsored SavY programmes provide financial education to teenagers in schools. It's about educating them to make better choices, says Gilbert.
I'll be writing more about teenagers and money and invite readers' stories: email@example.com