Spending Benjamins was a favorite activity for designer-jeaned teens just a few years ago. But the severe economic downturn changed things so much that their mantra might well be “a penny saved is a penny earned.” Some marketers are dispensing with XYZ-tagging and simply calling the young survivors of the financial debacle The Recession Generation.
The teenagers, who found themselves on shaky ground at a delicate age, have responded by toughening up on financial matters: Spending less, saving a bigger portion of their earnings and showing a high level of interest in learning how to manage their money. In a Charles Schwab survey of 1,000 teens aged 16-to-18 years old, an overwhelming number said they were Super Savers and not Super Spenders.
“It seems clear that the great recession has changed the mindset of teens,” Carrie Schwab-Pomerantz, senior vice president of Schwab Community Services. In the Post-Financial Crisis era, a large percentage (73 percent) say it is important to squirrel away cash for emergency needs. They rank college as the No. 1 reason for saving.
Grateful for what they’ve got
The Recession Generation really is way different from teens of 2007, when Schwab’s last adolescent survey said kids were piling on credit card debt at an unprecedented rate to buy clothes and pay for entertainment.
The new Super Saver thrift is not just a lot of talk, either. On average, this year’s group has put aside $1,000 in savings. The total is slightly less than the $1,044 in the prior survey – but then again there are fewer jobs for under-30s and even less for under-18s. Average weekly spending by teens has dipped noticeably, the survey said.
The recession has been tough on them, of course, but teens have not totally missed that fact that their parents have also had a rough time as providers. Indeed, the survey says that the kids think Mom and Dad are all right.
Say what? Even if they don’t always act like it, a startling 64 percent say they are grateful for what they have been given. Not only that, but Schwab’s Independent Advisor Research found most of them (58 percent) were unlikely to ask parents for more. Not that they were total ingrates before, but fully 39 percent say their appreciation of their parents’ financial straits has grown.
Of course they are hearing more about it from Mom and Dad. Money is no longer a taboo topic at the dinner table and three-quarters of parents have given the kids the lowdown on the family’s finances over the past year. Parents, like the kids surveyed by Schwab, saved with a vengeance when the recession gripped, as job losses and financial setbacks spurred caution.
More recently, though, the adult population has starting spend to again in the recovery. For their children the impact of the recession may last longer. History shows the downturn can mark those coming of age even after the rebound. Graduates who enter the workforce in a downturn tend to underperform those joining it in boom times.
Hungry for Financial Literacy
The sub-eighteen set, though, have big plans to go to college and out-earn their parents (59 percent expect to do so.) They say they want to enhance their money IQs in a way their parents never did, with 86 percent saying they would welcome classroom sessions on money management.
If the young Super Savers stick to their prudent path of savings and managing money over the long haul, their recession lessons may turn big dividends. By starting early they can enjoy the miracle of compounding interest, which no less a math whiz than Einstein called “The greatest mathematical discovery of all time,” or so says GenXFinance in an article explaining the Rule of 72. Super Savers will love this rule that calculates how savings pile up when interest compounds. By dividing the percentage number into 72, you find how long it takes for your savings to double at a given interest rate. (EG, at six percent it takes 12 years because 72 divided by six equals 12)
It’s the kind of calculus that Franklin loved to promote, though our inventor of the Founding Fathers did not really coin the term ‘A penny saved is a penny earned’ as so many people think. It’s merely a version of an age-old English phrase that said, ‘A penny saved is twice got.”
Yankees brought thrift to the New World as a kind of secular religion. Franklin, himself a self-made product of the era, did coin the phrase “Time is money.”
If the sixteen-to-eighteens embrace that adage they could be years ahead of the game.
RJ Safra is a New York-based writer who specializes in finance and business topics.