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Parents, Teens, and Money:6. Contracts: Know What You're Getting Into

  • What is a contract?

    Broadly defined, a contract is a mutually binding agreement between two or more parties to either do or not do something. We enter into these "contract" situations all the time, often without realizing it. A contract can be as simple as buying a cup of coffee (you agree to pay $2.50 for a latte and the restaurant agrees to serve you a drinkable beverage) or as complex as signing a home mortgage to which you'll be tied financially for the next 30 years.

    Some contracts are formal, signed documents that outline specific conditions and penalties if those conditions are not met (the car dealer can repossess your car if you don't make payments); other times they are verbal (you order that cup of coffee) or simply implied (you go to the dentist to have your teeth cleaned and it's implied that you will pay for the visit). In any event, your young adult needs to ask him or herself, "Do I fully understand what I'm agreeing to?" before signing their name, or clicking "yes" on a Web site.

  • Signed, sealed, delivered — it's yours

    Make sure your teens realize that their signature is more than just an autograph, and that they need to read any agreement carefully before signing. By accepting a contract, they are agreeing to be bound by all of its terms and conditions.

    Here are a few examples of where hastily signing or agreeing to contract terms could go wrong:

    • You co-sign an apartment lease with a roommate who later backs out, leaving you responsible for the rent.

    • You buy a car you can't afford and when you try to sell it, the car is worth less than your outstanding loan.

    • You sign a rental car agreement and later learn you accidentally signed up for optional insurance coverage or other features you didn't want or need.

    • You click "I agree" to a Web site's privacy policy and later realize you've given them permission to sell your contact information.

    • You join a cell phone plan and later realize it has stiff early withdrawal penalties.

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  • Other precautions to take

    Here are a few other tips your teens should consider before signing any contract or agreement:

    • Always make sure there are no unfilled blank spaces on anything you sign, even if the other party promises to fill them in a certain way. (To prevent such misunderstandings, many contracts specify that the signers must initial beside key provisions to acknowledge their full understanding.)

    • Don't be afraid to ask to take a contract aside or bring it home for more careful analysis or to get a second opinion.

    • Don't let yourself be pressured into signing anything. If a salesperson tries that tactic, walk away.

    • Make sure everything you were promised verbally appears in writing in the contract. This is particularly important for things like interest rates, down payments, discounts, penalties and the like.

    • Keep a copy of every document you sign. This will be especially important if you ever need to contest a rental deposit, damaged merchandise, insurance claim, extended warranty, etc.

    • Take along a "wingman" if you're making an important decision like renting an apartment or buying a car. It helps to have someone else there to help ask questions and protect your interests.

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