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HSFPP Weekly Update #191—Teens Prove to Be Saving Savvy

Message from Flashman: This week’s update is a follow-up to Update # 184—Optimistic Teens May Need Financial Reality Check. In fact, you might want to use the article In the New$… and the discussion questions from Update # 184 first, since it will be new to this year’s students.

Message from Jennifer Hunter: Most every child has a piggy bank at home, but are we really teaching our children, especially teenagers, to save for big-ticket items? Many of today’s consumers have a “got-to-have-it now” attitude, so they buy things first and then worry about paying the bills later. This attitude ties in closely with what Harvard law professor Liz Warren calls “a taste for credit” among many consumers (see Update # 182). It is important that teens realize the financial benefits and rewards of saving, as they are at or near an age when they will need to begin saving toward a car, toward postsecondary education and training, etc. Charles Schwab’s 2007 Teens & Money Survey addresses teens’ attitudes toward saving. The majority of teens surveyed did have a savings account and are planning for future use of this money.

 

Note to Educators in Kentucky: This week’s update is in line with the Academic Expectations listed below. Additionally, this week’s article In the New$... focuses on Unit 1 of the NEFE High School Financial Planning Program.

Academic Expectation 2.18
Students understand economic principles and are able to make economic decisions that have consequences in daily living.
Unit 2-6

Academic Expectation 1.2
Students make sense of the variety of materials they read.
Unit 1-7

Academic Expectation 2.30
Students evaluate consumer products and services and make effective consumer decisions.
Unit 5

 

Educator Notes to Class Activity:

Have teens divide into groups of 3 to 5.

1. Using the table below, ask them to make a list of five items that most teens would like to own or purchase in the near future (1 to 3 years). 

 

2. Ask teens to assign a realistic price tag next to each of these items. 

3. After the teens have developed their lists, ask them to explore their options for purchasing these items. Give each group a different amount of money in savings: $100, $500, $750, $1500, and $2000. Also assign each group a part-time job paying $6.00/hour. Let each group decide how much they will work.

 

4. Ask the teens to decide how they will reach each financial goal. Options include using current savings, taking out a loan, or building up savings.

5. If teens decide to build up savings before buying an item, how long will it take them to achieve their goal? And how much would they need to save per month?

 

6. If teens decide to take out a loan, have them calculate how long it will take them to repay it and how much interest they will have to pay. Then ask them if they still think it’s worth it. Or would they change their minds and save their money before buying?

 

Educator Notes to Follow-Up Activity:

Teens can make a list of five SMART financial goals. Have the goals typed and framed so teens may hang them in their bedrooms as a reminder of why they are working and saving. Following is one possibility for filling out the table for this activity. Please note that, in this example, “College Education” has been given a low rank of relative importance. This is not because we believe it is unimportant, but is offered as one possible example of poor reasoning that needs to be corrected. The rank given could reflect teens’ excitement over getting their class ring and/or going on their class trip; or they could be confusing importance with urgency (they would get the class ring before they go to college; therefore, the class ring is more important).

Table of Financial Goals

Goal	Price	Rank which items are most important	How will you purchase?	Length of Time to Achieve Goal	Loan Payment	Cost of Loan (Interest)
Car	$8,000	1	Loan	0	$247.02 for 36 months	$889.72
High School Class Ring	$250	3	Current Savings	0	0	0
High School Class Trip	$800	2	Current Savings	0	0	0
College Education	$3000/ semester	4	Build Up Savings	24 months	0	0
IPhone	$500 + 2 – year contract = $2,000	5	Build Up Savings	8 months	0	0

 

Web Site Pick of the Week:

Bankrate.com provides a calculator that can assist teens in calculating the costs of an auto loan: http://www.bankrate.com/brm/auto-loan-calculator.asp

 

In the New$… Teens Prove to Be Saving Savvy

by Jennifer Hunter, Ph.D. student majoring in Family Finance in the Department of Family Studies at the University of Kentucky

Too often teens get a bad rap for spending too much money or, in other words, not saving enough. However, the 2007 Charles Schwab Teens & Money Survey found that 84% of teens have some money saved; on average, they have $1,044 stashed away. Among the reasons for saving are for large expenses such as college or a car; but teens are also saving for CDs, computers, clothes, and iPods. Only 7% of teens reported saving for an emergency; nevertheless, teens recognize the importance of saving goals and working to attain them. 

Although at times it might seem irrelevant, financial behaviors in high school and college can set the stage for your financial health as an adult. In 2005 Americans had a negative personal savings rate, and the personal savings rate has remained below one percent through the second quarter of 2007. In general, this means that people are spending more than they earn. Prior to 2005, the Great Depression was the last time that we had a negative savings rate in this country. Does this mean that our country is in financial ruin? No, not necessarily, but it does mean that we need to spend more time thinking and learning about the importance of both saving and investing. And we not only need to think and learn, we must also take action to improve our financial outlook. You can’t depend on your parents forever to do things for you.

Setting goals to save for a big-ticket item such as a car or college education can make a big difference in the long run. Although is it not always possible, graduating college or technical school debt-free is a huge boost to your financial well-being. I graduated college with $37 in my bank account. I probably could have scraped up another $20 or so if I had counted all of my change, but, in a very real sense, I was broke. However, I quickly learned that I was much better off than most of my friends. Through the help of my parents and part-time jobs, I graduated college with no student loan, credit card, or car debt; therefore, being $37 in the positive made me rich. When I received my first paycheck from my first professional job, my expenses were limited. I had to rent the place where I lived, pay a down payment for utilities, and buy food. The remainder, my disposable income, was mine to spend or save however I saw fit. On the other hand, my friends who had borrowed money to pay for school, cars, and living expenses while in school had a lot more expenses and far less money left over at the end of the month. My point? The fact that I had saved for school and a car really paid off in the end because I then had extra money to save once again for a big-ticket item like a newer car or the kind of vacation I always wanted to take.

It sometimes seems like saving for a big-ticket item is impossible. Let’s use a car as an example. Many teens need a car for transportation to and from school, after-school activities, and work. Saving enough money for the car of your dreams might seem impossible, and it might be impossible at this point in your life. But, if you can take a step-by-step approach, you can work your way toward the car you really want. Let’s say you get your driver’s license and the car you have picked out costs $8,000, but you only have $2,000 saved. Most likely, with your parents help, you could borrow the difference and buy the car; but then, at only 16 years of age, you would have a monthly car payment and be $6,000 in debt. Suddenly, it doesn’t seem like such a good idea, after all.

Your other option would be to buy a $2,000 car that would get you to school and work. And, the more you work, the more you can save. With a part-time job after school, working only ten hours a week, you should be able to save, conservatively speaking, $2,000 in one year. Therefore, at the end of the year, you could trade up to a better vehicle. The good news about buying a $2,000 vehicle to start with is that it will depreciate very little in a year, so you could probably sell it for close to what you paid for it originally. Now you can buy a $3,800 car. At the end of the next year, you will have another $2,000, so you can step up to a $5,500 - $6,000 car. At the end of three years—sooner if you work more hours during the summer months—you can be driving a car much closer to the one you’ve dreamed about, while incurring no debt or monthly car payments. This leaves you with extra money for gas, insurance, and maybe even a little bit for fun.

Remember when setting your savings goals to make them SMART goals. A SMART goal is one that is Specific, Measurable, Attainable, Relevant, and Timely. In savings, a short-term sacrifice often pays off with big rewards. 

Sources:

(1) Charles Schwab & Co. (2007, March). Charles Schwab Teens & Money 2007 Survey Findings: Insights into Money Attitudes, Behaviors, and Concerns of Teens. http://www.aboutschwab.com/teensurvey2007.pdf

(2) Bruce, Laura. (2006, March). Negative Personal Savings Rate: What Does It Mean? http://www.bankrate.com/brm/news/sav/20060308a1.asp

 

Discussion Questions:

Divide into groups of 3 to 5.

1. Using the table below, make a list of five items that most teens would like to own or purchase in the near future (1 to 3 years). 

 

2. Put a realistic price tag next to each of these items. 

3. After your group has developed a list, explore your options for purchasing each item, based on the savings and part-time job income provided by your instructor. As a group, decide how many hours you will work and how much money you plan to save. Remember as you save for big-ticket items that you still have your regular expenses for clothes, entertainment, etc.

 

4. Decide how you will reach each financial goal. Options include using current savings, taking out a loan, or building up savings.

5. If you decide to build up savings, how long will it take you to achieve your goal? And how much would you need to save per month?

 

6. If you decide to take out a loan, calculate how long it will take you to repay it and how much interest you will have to pay. Do you still think it’s worth it? Or would you change their minds and save your money before buying?

 

Follow-Up Activity for Teenagers:

Make a list of five SMART financial goals. These goals would be good for you hang in your bedroom as a reminder of why you are working and saving.

 

Table of Financial Goals

Goal	Price	Rank which items are most important	How will you purchase?	Length of Time to Achieve Goal	Loan Payment	Cost of Loan

 

Kentucky High School Financial Planning Program
http://www.ca.uky.edu/fcs/hsfp
The purpose of the HSFPP financial updates, video lessons, and Web site is to assist county Extension agents, credit union educators, high school teachers, and parents who home school their teenagers so that they may improve the economic well-being of our teenagers; and also to show educators how the HSFPP, updates, and video lessons meet Kentucky core concepts. The Web site, updates, and video lessons are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators. The list of core concepts and order form for free program materials including the student guide and instructors manual can be found on the Kentucky HSFPP home page.
If you are not already on our listserv:
The video lessons are available only to members of our listserv and will not be posted to the HSFPP Web site because of the timeliness of the information. If you would like to receive our video lessons, which are sent to our listserv biweekly, on alternate weeks from these updates, please sign up at the following page of our Web site: http://www.ca.uky.edu/fcs/HSFP/response.htm.