Teens can be foolish with money. They can run through it like water, misplace it, not understand its value or how hard their parents or grandparents have worked to earn it — or otherwise have blind spots when it comes to using money properly and handling it well.
A semiannual report on teen spending from Piper Jaffray, a financial services firm, revealed last April that food and drink (mostly at Starbucks!) accounts for 23 percent of all teen spending. That’s followed by clothing (20 percent), accessories (10 percent), video games (8 percent), cars (8 percent), electronics (8 percent), and shoes (7 percent). Teens spend the rest of their money on music, movies and events.
But not all teenagers spend like there’s no tomorrow.
Good habits start early and can be taught by conscientious parents. These parents and other mentors know that sharing best practices when kids are young — educating them about money, exposing them to common-sense steps (like saving), and imparting good advice all along the way — can get them off on the right footing.
Beth Kobliner, a financial journalist in New York and the creator of the website MoneyAsYouGrow.org as a member of the President’s Advisory Council on Financial Capability, says only a quarter of young adults today have the most basic financial literacy skills. That’s according to a recent study from George Washington University and PwC. She has spent most of her career sharing smart money tips for kids and parents in an effort to help change that trajectory.
In an interview with LifeZette, she outlined several key mistakes that American teenagers make with money — and the lessons that can and should be learned from these errors while there’s plenty of time to get it right.
1.) Teens use too much plastic when making everyday purchases — which divorces them from the actual “pain point” of spending.
“This is a huge change today. People are using plastic all the time, for every purchase,” Kobliner told LifeZette. “Research out of Carnegie Mellon shows that when people are faced with a purchasing decision, their pain centers are actually activated — and by using a credit card, that pain factor is numbed. When you use cash, you feel like you’re giving something up. But when you’re swiping a card, it doesn’t feel painful at all. It feels sort of easy.”
This is why it’s not a bad practice at all for kids to use cash when they pay for purchases at the counter (within reason, of course). “This makes them think twice about why they’re spending money.”
She added, “If you’re using cash and something costs $101 but you only have $100 on you — well, you better believe you are aware of that extra dollar.” Not so if you’re swiping a piece of plastic, she noted.
2.) Particularly for a young generation that’s used to shopping online, teens fall victim to “sales, discounts, coupons,” or other purchasing gimmicks.
“Basically this is another way that our minds play tricks on us,” said Kobliner. “I think teens are particularly susceptible to this.”
“When there’s a sale on four shirts and you only want to buy one shirt, you end up spending more money than you needed to in the first place. This generation feels like, ‘Oh, look how great, I saved money — what a great deal,'” she said. “Actually, they haven’t saved any money at all. They’ve spent more than they intended to in the first place.”
Her tip: “Think of any bargain as bait. Try not to be lured by it.”
She also cautions against the “online sale of the day” — which can be hugely tempting to young people. Teens should ask themselves: What are they really offering me, and do I really need it? And can I afford it?
3.) Many teens are not prepared — when they get their first paycheck — for how much they’ll pay to the government for such things as Social Security and Medicare.
Even if they’re working an after-school job or a summer job, young people don’t realize that part of their earnings are often withheld by the government or that they’ll be taxed on their earnings (depending on how much they make) by the federal government and possibly even their state government as well, depending on location. (Other considerations include whether their parents still claim the teens on their tax returns or not — situations vary.)
In order to prepare for such important (if boring) realities, Kobliner advises that, come tax time, the kids themselves play a role in the filing of their taxes. Parents shouldn’t just “take care of it” and not keep the kids in the loop — not for older teens, certainly.
“Teenagers need awareness of these issues,” said Kobliner. “They can’t spend what they don’t have. They need to see and understand how much they are paying in taxes — and plan ahead.”
There is no magic bullet through this other than taking the time to learn, prepare, budget ahead of time — “and not get caught in a spiral of spending more money than you have or have earned,” advised Kobliner.