How you can help your children avoid debt

The cell phone trap
For many young people, cellphones ring up debt. When the bills come in, those hundreds of minutes, thousands of texts and expensive extras, such as customized ringtones, video downloads and photo messaging, can really add up. Paul Stevens's* son, 23, and his girlfriend rang up $2,000 in cellphone debt over several months. They were surfing the Internet constantly on the cellphone, says Paul, who finally refused to foot the bill any longer. His son's response was to simply walk away from the debt, much to his father's dismay. "It's one thing to be in debt and quite another to have no intention of paying it back," he says. "You have to pay your bills – that's an essential value of mine. Now the bill collectors are after him."

Avoid the trap
Make sure everyone understands the charges for roaming, text messaging, web access, etc., and what your plan covers and what it doesn't. And try to avoid getting caught up in the cool factor. Websites such as cellphones.ca can help you compare what's on offer and select a plan based on your calling needs and budget.

"If you're going to give your tween or teen a cellphone, they should certainly help pay for it, or at least know what the bill is each month and aim to keep it down," adds Foran. "If kids think everything is unlimited, that sends the wrong message."

The pre-paid card trap
Credit card companies now market special prepaid cards to teens as young as 13. MuchMusic's Prepaid MasterCard, for example, is loaded and reloaded with a certain amount of cash up front and used like a credit card.

The appeal is that parents can monitor their teens' expenses, while still giving them a little control and flexibility over what they choose to spend the money on. "Kids can't get carried away because they have to have a cosigner and there are limits," says Mike Farrell, a founding partner of the Toronto-based youth market and research firm Youthography.

Critics, however, see these pseudo-credit cards as a way to hook kids on the real thing and make it easier for them to spend money.

Avoid the trap
If you have $100, it makes sense to put it in the bank instead of on a prepaid card, says Foran. "I'd rather see kids learn to use their debit cards responsibly." Critics also point out the additional costs associated with these cards. The MuchMusic card charges a $39.95 "membership and activation fee" for the first year and another $9.95 in year two. It's $1.50 to load more money and a $1 charge to take cash out of an ATM. If the card expires, an "inactive fee" of $2 is charged against any remaining funds.

How your child can avoid excessive student debt on page 4, PLUS experts weight in: Should you bail your child out of debt?