In her stint as guest editor of Seventeen magazine's October issue, teen pop-culture phenom Hilary Duff raged against the credit card industry (in a G-rated hair-flip kind of way): "So many of my friends have started getting credit cards, and the banks don't really tell you how this works, like 'Do this, but don't do that,'" she said in an interview with MTV.
Around her Sweet 16 birthday three years ago, Hilary says, she began to pay more attention to the financial empire being built with her name. (Perhaps it's just a coincidence that around the same time, the plug was pulled on the Hilary Duff-branded prepaid Visa card.)
Today Duff pulls in about $15 million a year, according to Forbes. (Lindsay and Paris might want to flip through Seventeen for some tips: They earn an estimated $11 million and $6.5 million, respectively.)
Still, hardships, Hilary knows ... at least on the Hollywood sound stage. In the movie Material Girls, she and her real-life sis played heiresses who lose their fortune and (gasp!) have to learn to rough it in the real world. (Incidentally, IMDB.com reports that the flick was originally written for those other sisters -- Mary-Kate and Ashley.)
Hilary's not likely close to tilting out her credit limits any time soon. But even if she can't really relate, getting tweens to take notice of their finances (and ignore the pitches for her perfume and clothing line) is a worthy endeavor. And an uphill battle.
The young and the clueless
Kids these days pack a lot of spending power. The advertising industry spends $2 billion a year to woo kids and their cash. And, according to Census data, teens willfully obey, pumping more than $158 billion a year into the economy.
Anyone who has watched the performance of teen retailers like Abercrombie& Fitch (NYSE: ANF ) , American Eagle Outfitters (Nasdaq: AEOS ) , and Aeropostale (NYSE: ARO ) knows that fortunes can be made and broken by a customer base that isn't even old enough to vote. (And we're not even past the "A" section of the mall directory!)
Converting material girls into money whizzes isn't likely to become a top priority for marketers. They thrive on wide-eyed appeal and real-world ignorance. Just consider the tag line for the Hilary Duff prepaid Visa: "Shop like Hilary, like a star, with style." Meaning: Don't worry your pretty little head about adult matters of cash flow and financial security.
Unfortunately, that message is resonating. A recent survey conducted by the Federal Reserve and the Jump$tart Coalition for Personal Financial Literacy gave kids a solid "F" on personal finance knowledge. In questions covering everything from stocks to bonds to savings and credit cards, participating high school seniors scored just 52.4%.
Father (and mother) knows best
Parenthood offers plenty of opportunities for uncomfortable confrontations. After dealing with the piercings, partying, fender-benders, and college applications, many parents don't have the energy to add another topic to the dinnertime roundtable.
But money doesn't have to be a conversational third rail. It's all in how you approach the topic with your kids.
Make money an open-book test: Talking freely about the family finances exposes Junior to the realities of paychecks, mortgages, debt, and Uncle Bob's gambling issues. Encouraging dialogue now will make it less weird when they want to ask you questions about that credit card offer they get at freshman orientation, or whether or not they really have to pay taxes on their pizza delivery tips (answer: yes). Many money habits form at a young age (mine included). Make sure the ones your child gloms onto serve him or her well.
Let them do it on your turf: While it may seem counterintuitive, letting your kids handle the fiscal explosives (credit cards, cell phones) under your watch makes sense. Products like prepaid credit cards expose teens to the culture of plastic without the pitfalls (overspending, late payments) that prove ruinous to many young people's credit records. By the time they get to college, the game is already in play. (Here's a snapshot of what they'll encounter at Spendthrift U.)
Use bribery: Convincing junior to park his cash in a hands-off account can be a challenge. To keep the conversation from turning into a door-slamming exercise, take a cue from your 401(k) and offer to match ($0.30, $0.50, a dollar) every dollar your child saves.
Let them be (a little) impulsive: Savings is all about short- and long-term goals. Go ahead and let your kids spend some of their saved money on a short-term treat. But offer to match even more money on funds they sock away for the long term.
Make them rich: Look, money talks. If you can show your small charge how a measly investment now can make her Hilary-rich in the future, she'll sit down and listen to the lecture. But you don't need to recite an investing tome each night at bedtime. The key is time and investing smarts. Shannon Zimmerman offers the Cliffs Notes version in "Do the Math."
For more on putting your kids on solid financial footing (or giving your own finances a full makeover), take a free 30-day trial of The Motley Fool's GreenLight service. It provides step-by-step instructions on tackling life's big and small financial matters and an all-access pass to the members-only discussion boards -- like a friendly study hall where talking openly is encouraged. Take a no-obligation trial to start making your money work harder for you and your family.
American Eagle is aStock Advisorrecommendation.
Dayana Yochim is the co-advisor for GreenLight. She still has "money talks" with her parents -- only now they ask her the questions. The Fool's disclosure policy is for kids of all ages.