Despite numerous technological breakthroughs, our world is becoming a more complicated place to live in. With more and more things to pay attention to, it is becoming increasingly difficult to live a stress-free life.
In every aspect of our lives, from feeding our child to preparing them for college, we need to consider a number of factors at play in order to reach the best solution for us.
One of the fields that are rather complex to understand is the financial industry. It is difficult enough for adults to manage their finances, let alone young people who have no idea what a credit report is.
That is why we want to inform you about the most common financial mistakes young children and teenagers make. When you learn about these mistakes, you will be able to help your child avoid them and be more careful when making financial decisions.
Read our list to find out what these mistakes are and how to stay away from them.
Money Scams
Have you ever seen an ad for inexpensive luxury goods such as the newest smartphone offered at a bargain price? This is a classic example of scams that mainly target children and young people. All kinds of products can be advertised: smartphones, designer clothes, electronic gadgets and other luxury goods. What is common to all these ads is the price ‒ it is too low for such products.
So, if you are looking for a good deal, beware of these scams. You can find them anywhere as they are very common nowadays. What usually happens is that a child will give money to the scammer and never get the product they paid for. Also, they will feel embarrassed so they will hesitate to share this with you or anyone else, which is the main reason this kind of scams usually goes unreported.
Get-rich-quick Schemes
One of the most common types of these schemes are contests that promise a prize to the winner. They focus on gathering personal information as a means of identity theft. Such contests can appear in a form of literature or art competitions where talented children can submit their work to win a prize. However, they are asked to pay money to receive the prize or get their work published.
Another form of contests is the so-called ‘instascam’. As young people are obsessed with Instagram and other social media platforms, it is rather easy to scam them through these platforms. Scammers use comments to target celebrities’ fans with get-rich-quick links. They will usually tell you to call a phone number promising that you can earn a large amount of money in a very short time. When you call, the scammer tells you to load a card with cash under the excuse that they will add more cash on it. Of course, they don’t do it and you get robbed of your money.
Not Paying Attention to Credit Report
Now, it is important to monitor your child’s credit report for more than one reason. By paying attention to their credit report, not only can you help prevent identity theft but also maintain and improve your child’s credit score.
To prevent identity theft, it is best to use credit monitoring services from one of many credit monitoring companies. This will help you get an insight into your child’s credit report and keep track of any suspicious changes that appear on their report.
Another reason to pay attention to the credit report is to improve credit. To do this, you should teach your kid to be careful with their expenses, especially if they use a credit card. Credit cards can be rather tricky even for adults, so your child might not realize how they can damage their credit score if they use their card carelessly.
It is essential that your child learns how to make wise financial decisions that will help them build a good credit history for the future.
Identity Theft
Identity theft is becoming a serious problem in the United States as many people get scammed by skillful hackers who are always on the haunt for naïve consumers.
One of the classic examples of identity theft is phishing. You get an email from a high-authority company that tells you that your account has been compromised. In the email, you also receive a link that you are supposed to click and type in your account and personal details in order to protect your account. Of course, in most cases, the company is just an identity thief trying to get your personal information such as social security number, credit card details, account information and so on.
Another version of the same scam is the email that tells you that you have won a large sum of money. Similarly, you need to click the link in the email and enter your personal information on the page the link leads you to in order to get the details about the reward and payment.
Finally, social media accounts are frequently hijacked, with as many as one in four people falling victim to this fraud. If a fraudster gains control of your account, they might include a link in the post which, when clicked, installs malware on your computer.
Predatory Loans
Predatory loans are something that even adults should stay away from, let alone children.
Loan sharks will usually convince young people that they are their only option because they have no credit history. However, it is important to know that while it is true that banks rarely offer loans to people with no or short credit history, there are a lot of alternatives to bank loans and predatory loans. Here are some important rules to identify legitimate loans with reliable APR less than 36%.
Your child can find great personal loans online with an APR of up to 36%. Now, if your child has no credit history, this means that lenders cannot asses if they can trust them or not. For this reason, they will ask some questions that your kid should answer honestly. Also, it is important to be familiar with the loan fees, interest rates and other terms the lender offers.
As we said, there are numerous loans for people with no credit history. By all means, stay away from predatory loans. Instead, let your kid research their options, shop around and compare what each lender has to offer. This way, they will definitely find the best loan for them.
Scholarships and Grants
Most scholarships are completely legitimate and transparent. However, like in every other part of life, there are fraudsters who prey on people day and night. And not even students are safe.
These scholarships usually ask for an upfront fee to cover the application or processing cost. Of course, in the end, there is no winner of the scholarship.
Sometimes these scholarships offer a place in college to children who are very unlikely to make it to college. Also, there are scams that offer to search for the best scholarships or prepare all your documentation for a scholarship if you pay a fee.
So, if someone asks for an upfront fee in order for your child to become eligible, stay away from this scholarship. If they require that you make a purchase or give them your bank or credit information, these are sure signs of scam scholarships.
If scholarship search services cost money, promise information that can’t be found anywhere else, use success stories or high-pressure sales tactics, then they are definitely there to scam you and your child.
All in all, if the scholarship seems too shady, it probably is. You always need to look for the history of scholarship and the organization behind it. Don’t be naïve and teach your child how to recognize scam scholarships right away.
Conclusion
There are indeed so many ways that your child can get scammed or make poor financial decisions. But this is entirely normal since they are young and inexperienced in the field of personal finance. They probably only think of the next episode of the Netflix show or their finals week.
Even adults fall victim to many of the scams that we mentioned. Therefore, don’t be too harsh to your kid if they get scammed. What you can do instead is teach them all that you have read in this article or get them to read it. This way, they will be much more knowledgeable about the types of financial scams and ready to protect themselves in the future.