It might be graduation season, but teens have much weightier matters on their minds than prom and parties. A new survey from Charles Schwab found that the recession has left an indelible mark on today’s high schoolers, making them more grateful for what they have and less likely to make material demands on their parents.
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Nine in ten teens say the recession affected them and led to major perspective shifts, including a greater appreciation for what they have and more awareness of hardship, according to the poll. The majority of the 1,000 respondents said they were less likely to ask for things they want, they have a greater appreciation for what their parents have done, and they also believe that one day, they will achieve greater financial success than their parents. The recession, it seems, is the cure for any "spoiled brat" tendencies.
The survey also found that parents are more likely to talk about money with their teens now than they have been in the past. Three out of four teens said their parents have discussed finances with them. Carrie Schwab-Pomerantz, senior vice president of Schwab Community Services, calls that the “silver lining” to the downturn. Parents and educators have the chance “to communicate critical lessons about financial decision-making” to their children, she says.
Parents have long felt awkward doing so. In fact, previous Schwab surveys found that parents felt more comfortable talking about the birds and the bees than investing. A 2008 survey found that only 23 percent of parents explained how income taxes work, and just 14 percent talked about what a 401(k) plan is.
To get the conversation going, Schwab-Pomerantz suggests discussing money around key milestones in a child's life, such as getting a first toy, car, or job, which gives parents a chance to teach kids to save 10 percent of their income. Parents can also involve their kids in daily discussions about family budget decisions, Schwab-Pomerantz says. SchwabMoneyWise.com offers an interactive game and other tools to get the conversation started.
There are plenty of topics to choose from, because even though most teens describe themselves as “knowledgeable about money management,” they are a little fuzzy on the details. The survey found that only 60 percent know how to write a check, 35 percent said they could balance a checkbook or confirm the accuracy of a bank statement, and just 25 percent know whether using a check cashing service was a good idea. (It’s not.)
Just 39 percent of respondents said they know how to manage a credit card and 32 percent said they understand how interest and fees on cards work. Only 17 percent know what a 401(k) is and almost half said they have no idea how much car insurance costs. Teens also say they want to learn more about income taxes, how to save money, and how to budget. (See "The Best Graduation Gift: An Invitation to Move Home.")
The best source for this knowledge? Parents. Few high schools and colleges teach these skills, which leaves parents as the primary source of knowledge. More than 80 percent of teens say their parents are the ones who have taught them the basics of managing money. Three in four describe their parents as “great role models.” While parents are most likely to bring up college costs with their teens, kids would rather hear about how to invest, how to establish good credit, and career plans.
Over and over again, research has found that children often absorb the financial habits of their parents. A new survey from CESI Debt Solutions found a connection between growing up with frugal parents and saving money on a regular basis as adults. Similarly, adults who remember being told as children that their family could not afford things tended to use credit cards sparingly as adults and carry relatively small amounts of credit card debt. (See “Bad With Money? Blame Your Parents.")
Parents might want to consider dishing about their own mistakes, too, and they probably have plenty to choose from. A recent Scottrade survey found that most baby boomers said they wished they started saving earlier, almost half wished they had saved more, and half recommend starting to save before age 25—the current age of many of their children. Sharing those lessons could help those adult children from repeating their mistakes.
Here are some extra tips for parents who want to teach their kids about money:
Get help online. You don’t have to do all the hard work yourself, because other people have done it for you. Mymoney.gov, AmericaSaves.org, ING Direct’s Planet Orange, and SchwabMoneyWise.com are just a few of the websites designed to help parents educate themselves, and their children, about the ins and out of money.
Practice one financial tip a week. Arkadi Kuhlmann, chief executive of ING Direct, recommends picking one financial tip each week, such as setting up a budget, and talking about it as a family. That way, parents can also make an effort to set a good example. At the grocery store, they can take a minute to explain how to choose an affordable brand of dishwasher detergent, or how to compare the cost of bread.
Show kids what you can do with money. Susan Beacham, co-founder of Money Savvy Generation, invented a piggy bank with four compartments—save, spend, donate, and invest—to teach kids how to budget. "You're teaching them to stop, pause, and reflect, and this is the first step toward teaching them to delay gratification," she says.
Watch out for the subtle messages you send. Mary Ann Campbell, a financial educator, received mixed messages about money growing up. Her parents, in fact, implied that sending a girl to college was a waste of money, so she had to find a way to pay for her own education, along with the help of one of her brothers. That’s one reason Campbell wrote her Ph.D. thesis on how 20-somethings learn about money from the way their families talk about it. She discovered that the way parents and grandparents talk about money, as well as the way they act, makes a big impact.
Let them make their own mistakes. Lewis Mandell, a finance professor at the University of Washington who has studied financial literacy, says allowing children to experiment and make mistakes can provide more useful lessons than anything taught in school. He encouraged his now-grown daughter to invest as a teenager; she learned how to diversify after losing money in Pepsi stock.
In other words, just as with teaching children to ride bikes, at some point you have to let go so they can learn to balance on their own.
Parents, how do you talk to your teens about money? Do you think the recession changed them?
Kimberly Palmer (@alphaconsumer) is the author of the new book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.