Danger ahead for free-spending teens

Teens, in our society, have what might seem to be the perfect relationship with money–plenty of money to spend with few recurring debts or financial responsibilities. Yet it is only a short journey from a that of a free-spending teen world to that of an adult who is legally responsible for his spending. To expect someone who has been spending money freely to make an overnight transition to being a financially savvy adult is unrealistic.

In terms of money management, the teen years are the “calm before the storm.” There is no amount of financial literacy or money talk from mom and dad that can prepare them for the real world of adult money management. As a group, teens are projected to spend almost $209 billion in 2011. What do we know about teen spending?

Teens spend for themselves, first and foremost. The breakdown remains fairly consistent over the years. Teens spend money for their personal wants with 34% for clothing, 22% for entertainment, and 16% for food, generally as a social activity.

Teens were protected during recession. A survey by Seventeen magazine in 2009 revealed that, despite the recession, 75% of teens were receiving the same or more spending money as the previous year. Other reports showed that teens reduced their spending somewhat during the recession but rebounded quickly, increasing their spending in 2010 by 6% to 8%, much to the delight of retailers.

Spending isn’t correlated to employment. Federal Labor Statistics showed the July 2010 unemployment amount 16- to 24- year olds at 19.1%, the highest July rate on record since 1948. So where is the money coming from? Look to their parents who are financing these spending habits, thereby shielding their kids from the realities of the real world, where money comes with obligations (and legal commitments.)

When parents give kids money without responsibility, at any age, kids will develop free-spending habits that will be difficult to break. The most critical years are those last few years before becoming a legal adult—the teen years.

We see that most of a teen’s money is spent on entertainment (movies, music, games), clothing and snack food. We also know that teens, in general, are not spending money on housing, groceries, insurance, or loans. This creates a huge disconnect that guarantees a rough landing for many young adults when the real bills start piling up.

One of your responsibilities as a parent is to guide your kids through a transition to the adult world of money. You can do this by creating a semi-independent stage where your children assume responsibility for more of their own day-to-day expenses, such as school, transportation, and education.

Even though you may be providing most or all of the funding the key is to transfer responsibility to your teen to manage the money for more than personal gratification. In creating such a real-world money situation, The No-Cash Allowance provides a consistent process that children can use to learn money management before they become independent adults.

 

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