Ready­ing Teens to Live Within Means

The Washington Post Sunday - - Business -

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.

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