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Teens not Money-Smart

Parents: You might want to think twice before you give the kids the credit card. U.S. teenagers spend more than  $155 billion annually on clothes, video games and other material possessions, according to a San Antonio Business Journal report.

However, a survey sponsored by the Federal Reserve found that despite teens? growing spending power, many teenagers are not investing their money wisely, and as a result, are financially illiterate.

The survey -- conducted every two years -- found that only 52.4 percent of high school seniors answered questions about personal finances correctly. For example, 55.8 percent of high school seniors thought they would have no liability if their credit card were stolen and charged as much as $1,000, reports the Associated Press. A credit card holder is limited to $50 after the credit-card issuer is notified.

Additionally, only 22.7 percent of seniors say they know that income tax may be charged on the interest earned from a savings account at a bank if a person?s income is high enough. And, nearly 57 percent think earnings from savings account interest may not be taxed.

Here are additional survey results:

  • Nearly 38 percent correctly said that retirement income paid by a company is called a pension. That's up from 34.2 percent who answered right in the 2004 survey. However, 59 percent in the survey thought it was called Social Security or a 401 (k).
  • Only 26 percent knew that a state bond is not federally protected against loss. In the previous survey, 35.3 percent chose the right answer.

"This indicates that despite the attention not paid to the lack of financial literacy, the problem is not about to resolve itself anytime soon," says Lewis Mandell, a professor of finance at the University of Buffalo Scholl of Management, in the report.

These results and the importance of financial literacy is a good lesson for teenagers and adults.

"Increasingly, personal financial security requires the ability to understand and navigate the financial marketplace. For example, buying a home, saving for retirement or for children's education, or even effectively managing the family budget now requires more financial sophistication than ever before," says Fed Chairman Ben Bernake, in the report.

As teenagers come into their own financially, parents should help them build good spending habits. Without these skills, teenagers will be haunted by bad debt and poor financial decisions for the rest of their life.

For more information about Banking & Savings, visit's Finance Center.

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