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Good Money Sense in an “I Want it Now” Society

A great article by fellow ACA Advisor and friend, Erin Baehr, CFP®, EA Shawnee-on-Delaware, PA

My six-year-old niece asked for an iPod this past Christmas. Not some kid-sturdy version of a portable CD player, not an MP3 player, but specifically an iPod. She didn’t get it (thanks to my sister-in-law’s good sense). But the fact that she knew to ask for it—an expensive name-brand electronic device—astounded me. Maybe it shouldn’t have. Between what they spend themselves and what they convince their parents and grandparents to buy, American children have influence over nearly $1 trillion each year. Naturally, the advertising industry is well aware of our kids’ buying power. Like it or not, your children are a crucial marketing niche. Of course, the marketer’s dream can be our nightmare. Who hasn’t experienced the shopping aisle meltdown of a child who thinks you are the meanest parent in the world for not letting him get that new toy he saw advertised on TV? How many of us have tried to reason with a teenage girl who very seriously believes her life will be ruined by wearing clothes purchased from the wrong store? If it seems like a losing battle, it’s no wonder: the average child is exposed to 40,000 commercials each year, manipulated by some of the most astute minds in the business world. So it’s also no surprise that our free-spending teens grow into young adults with poor financial habits and a skewed perspective about money and spending. What does the future hold for young people who embrace a consumer lifestyle that can harm their long-term financial health? Constant exposure to the message that they deserve a fantasy lifestyle unfortunately leads many young adults to aspire to lifestyles their salaries can’t come close to matching.

Here are some startling conclusions from a United Services Automobile Association (USAA) survey, High School Confidential:

An Inside Look at Teens and Money:

• Teens—half of whom aren’t earning their own paychecks—spend nearly as much in “fun money”

every month as their parents do.

• One teen in five expects to earn $60,000 or more at their first full-time job after high school or college.

• Nearly two thirds of teens expect to be millionaires in their 40s—or sooner.

• Forty-two percent of teens expect to retire by age 60.

Despite these findings, teens who learn good habits can become financially functional and successful. The present state of the economy presents an ideal teachable moment, allowing us to reinforce the lesson that our society, in many cases, is paying the price for living beyond its means. Use this opportunity to give your children an understanding of financial realities, and teach them to make responsible choices with money. For example, if your teen gets a pile of birthday money, you can explain that without a plan, it could soon be frittered away. Help your kids realize they have choices about spending that money.

They can share it. One effective antidote for materialism is to stay mindful of the needs of others. Children exposed to the need around them in their community and the world at large have an easier time resisting that tempting pair of $90 jeans. The feeling your kids will savor from realizing the importance of the charitable donation can’t be matched by any material luxury. Of course, encourage your kids to be purposeful about their giving, deciding on an amount or percentage to give and where they would like to donate.

They can save it. Teach your children to save at least 10% of their income, whether they receive it from their allowance, gifts, or a job. Aside from the obvious benefit of building their savings, developing the habit of saving will encourage them to live within their means. Offer rewards for reaching milestones in their savings, such as a monetary match or a family outing.

They can spend it. Help your kids recognize the difference between needs and wants and then choose their spending accordingly. We insisted on two rules when my kids first started making spending decisions: they had to wait at least a few days to make sure they’d still want the item, and they had to search for coupons and sales before buying anything. You could also have them list three other ways they could spend that money before they actually do. Of course, teach your kids to use credit responsibly. They will be inundated with offers of easy credit, and they must understand the real cost of that credit and the consequences for default. They also need to know the value of their credit score and how to protect it. Let them try out credit with a loan from you for something they want, and if they default, repossess what they’ve bought. Better to learn by losing a small item now than a car or a home when they’re older.

They can pay taxes with it. Sooner or later, we all learn that along with the privilege of living in this great country comes the duty (and in many ways the privilege) of paying taxes. Don’t wait for them to be disillusioned by the take-home amount of their first paycheck. Collect a “family tax” on their income, and use it for something to benefit the whole family, like a group activity.

Parents can take heart: you are still your children’s greatest and most important teachers (despite what your teens may tell you). Don’t let the only messages they hear about money come from others with an agenda. Take the time to communicate your financial values to your children. Reflect on your personal financial philosophy, and be clear with yourself about your values and what you want to model for your children. Despite the efforts of clever and powerful marketing, you can counter the influence of our consumer-crazed society effectively.

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