Kiwi teenagers are taking on 'easy loans' and falling into debt traps that can take 10 or 20 years to get out of, says the Commission for Financial Capability's Kelly Gay.
He's hopeful Sorted In Schools – a new $10 million nationwide programme to educate kids about money, debt and savings – will become the 'fence at the top of the cliff'.
Kids need to be taught to distinguish between debt which is necessary and debt which isn't, Gay says.
Part of the problem is that many adults haven't yet learnt this lesson – debt is now seen as a pretty normal state to live in.
"For many people, money is an artificial construct, it's a series of numbers on a screen."
Student debt – which removes the responsibility of decision-making – has also contributed, he says.
"There's an assumption that you will need to take on debt in order to get a qualification, and that's actually the way you move forward in the world."
Eighty percent of high school students surveyed by the Commission for Financial Capability (CFFC) said they would prefer to learn about financial literacy at school.
The two things they most wanted to know about were effective budgeting and borrowing.
Many parents surveyed were surprised to discover money management isn't taught in schools at all, Gay says.
Teachers surveyed said they would need an easy way to deliver the information that isn't boring.
The CFFC Is now co-designing the Sorted In Schools teaching resources with teachers from 50 schools around the country.
The focus is particularly on arming kids in the later years of high school with what they need to make informed choices.
Sorted will be free and aligned to NCEA so students get credit for participating.
To be effective, a programme like Sorted In Schools needs to be personal and relatable, Gay says.
'Many kids are looking for that sort of experience – 'Who am I? How do I fit within the world?'
"If you make this a personal experience for kids they're far more likely to remember it and apply it later on."
Kelly Gay's top five money tips for teens
1. Build savings into what you're doing (to help you learn to live within your means)
KiwiSaver is a fantastic idea for everyone, and you can participate and benefit without having to understand it.
2. Work out the total cost of the debt (i.e. understand what you're signing up to)
This could apply to a mobile phone plan...
"When you sign the contract for a new phone do you know what you're actually signing up for? What happens if you default? Can you get out of it? What is the cost of getting out of it?"
..or a career plan.
"I could go to this university and do this programme or this polytech and do this programme or maybe I could go and get an apprenticeship – or maybe I should just go and get a job."
As much as possible, plan through all of the scenarios and keep in mind their consequences.
3. Get good advice from someone who isn't trying to sell you anything before you make a decision
"Where do I go to get reliable information that's not biased by anyone else who's trying to sell me something so that I can make the decisions that are best for my future."
4. Understand your rights and obligations (to avoid being taken advantage of and have the knowledge to defend yourself)
5. Learn the difference between need and want
Pressure to have the latest iPhone can be intense, but think about whether it's something you really need now or can wait for.
If you decide to get it now, what's the cost of that decision?
"If you are thinking about taking on debt and you want to hide it from other people, that's a really good sign that it's time to talk to somebody you trust to get some perspective. And it might be time to talk not about getting more debt but to the people you already owe money to."