Readying Teens to Live Within Means
T rain up a child in the way he should go, as the saying goes, and when he is old, he will not depart from it.
Somehow that lesson gets lost for many families when it comes to teaching children about money — even though there are a number of government agencies, nonprofits and private companies promoting financial literacy.
As parents, we know it’s imperative to teach our kids to say no to drugs and alcohol. But can we honestly say we’re doing enough to help them fend off consumerism and credit dealers? I’m doing my best but I could do better.
Most important, are you training your children to live off an average salary as young adults? Or are they now living so large based on your income that they will be incapable of managing their finances on a modest starting salary once they get into the real world?
According to one survey, today’s teens expect to make big bucks when they reach adulthood. But what they know about personal finance won’t help them live off what they most likely will earn. That disconnect is part of the reason why there are so many adults in credit card trouble or struggling to manage mortgages on homes they can’t afford.
American teens believe, based on the career that interests them the most, that when they get older they will be earning an average annual salary of $145,500. Interestingly, boys expect to earn an average $173,000 a year and girls $114,200, according to the findings of Teens and Money, an annual survey released last month by Charles Schwab and the Boys & Girls Clubs of America.
The fact is, only about 14 percent of U.S. households have incomes between $100,000 and $200,000, reports the U.S. Census Bureau. The median household income in the United States is $46,326, according to the latest census figures.
While it’s true that adults with advanced degrees earn more than those with just high school diplomas, many college students won’t know how to get by on what they make once they graduate.
Adults with bachelor’s degrees
earned an average of $54,689 in 2005. Take out taxes and add in student loan and credit card debt and our young people have got a lot less to live on than they’re expecting.
“It’s great that teens are optimistic about their futures, but the reality is that these kids will face financial choices and decisions that are far more pressing and complex than anything their parents or grandparents ever encountered,” said Carrie Schwab Pomerantz, chief strategist of consumer education at Schwab.
It’s fine that teens hope to earn high incomes, but just in case things don’t turn out as they plan, you’ve got to teach them to live within their means. That’s key because there’s a level of financial confidence among young people that doesn’t reflect what they actually know about how money management, the Schwab survey found.
Nearly two-thirds of 1,000 teens surveyed by Schwab said they were prepared to deal with personal finance issues once they graduated from high school. The majority said they were knowledgeable about money management, including budgeting, saving and investing.
But when these 13- to 18-year-olds were pressed on the specifics of personal finance, many didn’t know much at all, as this survey and others have shown.
For example, fewer than half of the teens surveyed knew how to budget. Others didn’t know how to pay bills, how credit card interest and fees work or whether a check cashing service is good to use (it’s not).
Yet teens certainly know how to spend. They have no problem using credit. That we’ve taught them well.
Teens were more likely to have a cellphone than a savings account. Although 88 percent of them said they don’t like the way it feels to owe someone money, 29 percent have incurred debt ($293, on average). The survey found that more than half (51 percent) believe “it is easier to buy things with a credit card than cash” and, given the choice, more than a quarter (29 percent) would prefer using a credit card, a 61 percent increase over the percentage of teens who said that in last year’s poll.
The surveyed teens said they aren’t being taught basic money management by the people who have the most influence over them — their parents. Only one in four said parents or guardians are training him or her about money by providing a lot of experience budgeting, spending and saving it.
Your children will have a better chance to live within their means as adults if you spend time while they’re young showing them how to handle money. Teach them how to create a budget. If you don’t know yourself, start by downloading a budget form I’ve created at www.washingtonpost. com/business. You can also go to a new Web site that Schwab has created at www. schwabmoneywise.com, which has a number of activities and tools you’ll find helpful.
You will train your children well if you rebuff many of their constant consumer demands. It will be good practice when they’re on their own and won’t have the money to satisfy their every desire. Right now what many know is: I want. Mommy and Daddy give. It will be hard for them to depart from that habit once they’re grown.
As Pomerantz says, “teens not only want the keys to the world of adult finance, they are actually looking to their parents for driving lessons.” K On the air: Michelle Singletary discusses personal finance Tuesdays on NPR’s “Day to Day” program and online at www.npr.org. K By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. K By e-mail: singletarym@ washpost.com.