“If it hadn’t been for the online gambling, I might not have gotten in over my head. I did pretty well starting out. It was easy money, at least when I began. Then I lost a few times and began playing and betting more to make up for my losses. It was all on credit cards, so I didn’t feel the expense right away. But pretty soon it was more than I could pay. So I got credit cards to pay off my credit cards. Before long the interest was killing me. I tried pawning a few things, but except for some electronics, I didn’t have that much to sell. Finally I called my parents. Mom’s a lawyer, and she was pretty tough. I could come back home, and they wouldn’t charge me any rent. But I have to take the money from my jobs and pay off what I owe. No more gambling. No more credit cards. Then we’ll see what happens next.”
Money can have many meanings. For older adolescents, it can affirm self-worth, reflect social standing, and contribute to quality of life. Although it may not buy happiness, money can definitely finance a good time. Most of all, money is about freedom, because it gives young people the power to choose to buy what they want to have or do. Money buys control.
Money can be given, earned, or borrowed, but any way it comes, there are usually some strings attached. When it’s given, there can be expectations attached to what it pays for—as when parents want their daughter to work hard in college for the financial sacrifice they are making to help her attend school. When it’s earned, there can be a sense of entitlement for how to spend the money—as when a young person feels he should be able to buy what he likes with the income he makes. When it’s borrowed, there is the obligation to the borrower or creditor—as when a young person who takes out a loan or gets a credit card.
Because the last stage of adolescence is such a large step toward independence, there is a natural desire for young people to gain more freedom of monetary choice—to buy what they want, to keep up with friends’ spending, to afford a lifestyle that feels more free and grown-up. In most cases, young people do not have sufficient money to meet their increasing material wants and needs, and they often regret the lack. So when the demands of indebtedness chase a young person back home, there are three challenges he or she has often failed to master:
To help get them back on their own (or to avoid their boomeranging home in the first place), parents must help their children understand each challenge and how to overcome it.
What is enough to live on? That is the question that troubles many young people when they leave home during trial independence. And it is a hard question to answer partly because of material deprivation.
Material deprivation? It can be hard for parents to think of their teenager as materially deprived, given the basic support that they have provided over the years. However, young people’s sense of deprivation is usually relative. No matter how much they have been given, there is always more to have and more that others have—others whom they may or may not know. And then, of course, there is the market society in which we live that keeps stimulating consumer dissatisfaction by advertising the pleasures and benefits of what is new, different, and better that will improve and enrich our lives.
With the onslaught of advertising, young people growing up in present-day America have much cause to feel discontent. They are constantly sold innovation, constantly told about all they could have, constantly reminded of all they don’t have. How are they supposed to stay satisfied? Then taking on a part-time or fulltime job, and starting to make more money, only causes them to want more. That’s the awareness that comes with starting to earn money: realizing that there is never enough. As one young man observed, “The more I make, the less I have for what I want.” Starting a job makes it easy to get swept up in a tide of rising financial expectations.
The matter of money illuminates a painful contradiction in trial independence. At a time when being away from home means more freedom of action, financial limitations can actually make young people less free. As one young man put it, “I have more freedom to do what I want, but less money to do it with.”
Of course, much of how young people manage money during trial independence depends on how their parents trained them in money management while they were growing up. In general, from the onset of adolescence (usually around age 9–13), parents need to begin teaching their son or daughter about the practicalities of money. The first step is to diagnose whether their child is by nature and habit a spender or a saver. The distinction is often telling because it is a rough indicator of self-control.
Temptation, impulse, and the need for immediate gratification often rule a young spender, who needs to outlay money right away. A young saver can often delay gratification and has patience, self-restraint, and the capacity to plan ahead.
When parents have a young person who is by inclination a spender, they need to have him or her practice saving some of what money comes his or her way. This will literally and psychologically mean “money in the bank” as the adolescent learns important self-management: to deny impulse, resist temptation, and set and work toward future goals. Saving teaches self-discipline.
Parents can use the onset of adolescence as an opportunity to teach young people how to manage money at an age when it becomes increasingly important. One way to think of this instruction is by helping young people make a variety of money connections. For example:
Because adolescence is an age when awareness of the power of money increases, it is the time for parents to start helping young people learn these money connections. Young people need to experience what they can do with money and how to responsibly do it. For example, I’ve known parents who provide allowances to help their early adolescent in middle school learn to wisely spend and save and donate. And I’ve known parents who help their high school adolescent learn to manage a bank account, budget expenses, earn some of his or her own way, and pay some of his or her own bills.
In my informal observation, those young people who leave home at trial independence having been taught money connections like those listed previously tend to be the most successful in managing this next phase of independence. By learning to responsibly manage money, they have learned to manage themselves in many other responsible ways.
In contrast, there are the free-spending young people whose suffering from insufficient funds and inability to live within their means eventually brings them back home. If a young person didn’t learn the right lessons earlier, he or she needs to learn them now to be able to venture out into the world (of spending temptation) again. At this point, parents need to encourage the development of realistic financial thinking for this time of life. To do so, they can explain the difference between what the young person may consider a problem to be solved and what parents see as a reality to be accepted:
Without a proper understanding of how to think about living with what they deem insufficient funds, late-stage adolescents are doomed to handle the problem in the only way they know how: overspending.
Overspending results from a young person’s lack of maturity in decision making when it comes to managing money. By the last stage of adolescence, young people are much more capable of mature decision making than when they were children. What varies, however, is how practiced they are in exercising this capacity. Among other components, maturity at this age involves two skills: self-restraint and responsibility.
Self-restraint has to do with tolerating the delay and denial of gratification, imposing these restraints on oneself, so that one exercises judgment, overriding what one wants to do by following what one knows is wise to do instead. It takes maturity to say, “I want it, but I can’t afford it, so I won’t buy it.”
Responsibility has to do with seeing the connection between choices made and consequences that follow, with owning those choices, and with dealing with the consequences so that the connection can inform future choice. It takes maturity to say, “I learned my lesson using my food money for the concert, and I won’t do that again.”
As a young person’s brain matures, so does his or her capacity for decision making. The young person develops more responsibility by connecting choice and consequence, owning choices, and facing consequences. Telling oneself, “Not now” (delaying gratification), or outright “No” (denying gratification), can be hard, though, for young people who have not grown up exercising self-restraint and accepting responsibility. Born as immature decision makers, children are driven by emotion, impulse, and the need for immediate gratification. Self-restraint created frustration, but if parents continually indulged the child to relieve that frustration, then his or her tolerance for delay or denial was diminished. Responsibility is not easy for a child to learn, either. Responsibility means accepting blame, but if parents did not hold the child accountable or rescued him or her from consequences, then lessons of responsibility went unlearned.
Young people also develop maturity by learning to think twice. This means that, when weighing a decision, first they ask themselves what they want, and then they ask themselves what is wise or right or likely. They delay immediate gratification to create time to consult judgment, values, past experience, and possible consequences before deciding what to do. Now judgment, not impulse, is in control.
Continual overspending is usually an impulsive expression of immaturity. It shows a lack of self-restraint and responsibility around money, as the young person satisfies tempting wants at the expense of basic needs or at the cost of future debt.
For example, a young woman rushed out to the mall to buy special clothes for a party, only to end up not having enough money for her monthly rent again. She called her parents on account of this “emergency” need, but this time they refused to “advance” her the expense. What was she going to do? Come back to family and use the time to get her financial house in order? If so, earning, saving, budgeting, and living within her means become conditions that her parents need to set if they agree that she can return home. Parents can make it clear that this is going to be a realistic stay so their daughter can begin to practice living within her means, which means living on a budget. What she earns, what she owes, what she spends, and what she saves become prescribed.
Living on a budget is good way to develop maturity, because it requires exercising self-restraint and responsibility when spending becomes a matter of planning and when one keeps the commitment to planning. A lot of times, however, last-stage adolescents and parents view “living on a budget” differently. The adolescent resists budgeting, recognizing that spending constraints represent a loss of freedom. Parents, however, embrace the notion, seeing the budget as a bulwark against overspending. Both views, of course, are correct, but growing up demands giving up, and to become a mature adult, young people must learn to discipline their free-spending ways.
One powerful source of instruction can come from parents who “open up the household books” for their returning adolescent, laying out the budgetary structure they use to restrain their spending and keep it within responsible limits. One mother described the shocked response from her daughter when she did this: “I never thought it cost so much to run our home!” Then the mom gave her daughter a simple spending formula to live by: “What you’re able to earn, minus what you have to pay, less how much you want to save, equals how much discretionary money you can afford to spend.”
For some parents, opening up the household books to older adolescents is not something they want to do. Like discussing their history of substance use or sexual experience, sharing about the making and managing of money can feel uncomfortable and is often considered too intensely personal and private. At issue is the degree to which parents choose to share their own experiences so they can instruct by experience and example, disclosing some of the hard financial lessons and strategies for living they learned that their son or daughter could benefit from knowing.
The most important thing that parents can give their child is knowledge about who and how they are, and this includes information both about past history and present functioning. Adolescents who grow up with very uncommunicative parents, very private parents, or parents who want to talk only about the child’s life often leave their children in a state of unnecessary ignorance. By instead opening up and sharing their experiences, mistakes, and strategies, parents can help their children learn to address over-spending issues before (or after) they try to solve them on their own, often with a risky and even troublesome method: credit.
Come trial independence, young people become creditworthy—at least in the eyes of banks, credit card companies, and merchants, who see the potential for unsupervised spending in these attractive customers. Through the mail, through the media, or on the college campus mall, these vendors approach young people with offers that most find hard to refuse.
We live in an economy that trains people to live on imaginary money—spending cash that they don’t actually have, what we call credit. Most parents have grown up in an economy in which credit has only become simpler to get and trickier to understand over the years. Some parents can even remember when paying cash was the way to go, putting by money in envelopes for categories of anticipated expenses, or when people used credit not to build up debt but mainly to pay off obligations in a timely way to avoid interest and to build up a good credit report. Thus, parents have a lot of personal experience to share with their son or daughter about how easy it is to get into debt and how hard it can be to get out.
The age-old principle of money lending still applies today: time is money. The more time that lapses between the borrowing and the paying back, the more expensive that borrowing becomes, as more interest is charged. From the hard experience that their adolescent lacks, parents understand how credit allows people to buy what they otherwise cannot afford, indebting their future to their present and increasing their cost of living when payments become due.
If a young person is starting college, somewhere in that freshman orientation period will be the opportunity for credit card companies, banks, and even the college (by affinity) to promote special deals and rewards to get these new consumers tied into the credit system as quickly and firmly as possible. In trial independence, young people are invited to join the culture of consumer debt in a host of seductive ways. Retailers use gifts, free offers, discounts, delayed payment schedules, and token rewards to entice young consumers.
What young people don’t often understand, though, is that they have just been enticed into a new economy. In a cash economy, the spending question is, How much can you afford now? In the credit economy, the spending question is, How much can you afford to defer until later? It is much easier to keep track of spending now than it is to keep in mind the mounting obligations that one is putting off until later. Thus, easy credit causes most young people to start living beyond their means. Even debit cards are tricky because young people often don’t calculate the expense of maintaining an account and the fee attached to each withdrawal.
Because most young people do not receive an education about how to manage spending in an easy-credit system before they depart from their parents’ care, many must learn these lessons after the painful fact of charging their way into unmanageable debt. At that point, they experience how late payments can be costly and how nonpayment can be most costly of all. After the fact, many young people discover five harsh realities of credit-card living:
For parents, helping their son or daughter reorganize financially may involve arranging refinancing, consolidating debt, and negotiating repayment. “What we wanted her to understand when she came home,” explained one parent, “was how it’s easy to get behind, how there is an obligation to repay, and how not to get in this credit fix again. Coming home didn’t mean we were going to shelter her from her obligations or provide financial rescue—just a safe place from which she could get a job and start to repay what she owed. She had bought into a two-year health club membership she couldn’t keep up, so one of the first things was for her to negotiate an end to that.”
One way for parents to explain the challenge of easy credit is the concept of imaginary money. Years ago, a local retailer in my town advertised easy credit with this well-crafted come-on: “It doesn’t cost money, just a little bit a month.” The power of that slogan, and many others like it in the marketplace, was that it emphasized how easy it was to buy, because at the time you didn’t need money to buy, only credit, which was supposedly easy to pay off afterward. Such persuasion encourages young people to commit two errors of imagination: to imagine living beyond their means and then to imagine how easy repayment of those charges will be. In the extreme, they can get into something-for-nothing thinking, treating credit as “free” money. Another name for this act of imagination that easy credit inspires is wishful thinking, or wanting to believe what isn’t so.
Sometimes, parents accidentally train their adolescents while in high school to engage in this wishful thinking. They will encourage her to believe in the magic of plastic by giving the young person one of their credit cards to use for routine expenses like gas, eating out, entertainment, clothing, and school and personal health supplies. The magic that the young people learn from this is that the card can be swiped for purchases without the charges, becoming evident because the bill goes to the parents, who pay it, thus contributing to the illusion that credit cards provide free money.
Thus, when it comes to credit, parents really need to offer that timeworn but valuable piece of advice: “Don’t believe everything that you think.” They need to encourage realistic thinking by explaining how credit really works, the benefit of convenience it provides, the temptations it offers, and the traps it can create. In most cases I have seen, unmanageable credit indebtedness during trial independence represents a failure of foresight. The young person thinks only about the immediate benefits of borrowing but can’t predict the burdens of paying it back. So the job of parents is to help young people picture the whole story of easy credit, from what feels like free money up front to the expensive obligation that follows. The risk of easy credit is living beyond one’s means now and, when repayment becomes due, an increased cost of living later on. Thus, one parent advised her returning daughter: “Be careful how much you burden your future to pay for your present.” And if your child returns home debt-ridden, you must use the experience to instruct, not to discharge their debts for them.
For impulsive adolescents, focused more on spending now than on repaying later, loans can also seem like free money. In addition, wanting something a lot, like a college education, can seem to be worth the price of whatever loan one needs to take. Neither assumption is true.
So if you child is discussing taking out a loan, before you cosign for a loan or before the young person signs on his or her own, it’s important for you to help your child shop for the loan and check the reality of repayment by running the numbers.
This is especially true of college financial aid. A college loan is a ticket to indebtedness after graduation. And because of interest, what young people repay will be appreciably more than the amount they borrowed. So the question young people should ask themselves is, How big a debt ticket do I want to buy?
To figure this out, they should estimate monthly earnings from the first job they are likely to get, and calculate between 10 percent and 15 percent of take-home earnings they can afford to dedicate to paying off the loan over a certain number of years. In general, when it comes to college loans, the goal is to keep that indebtedness as low as possible. Thus, it may be better to go to a “lesser” college and graduate with lower debt than to go to an elite institution and graduate with a larger obligation. Despite what young people are often told, a “good” college does not guarantee a “good” job any more than holding a college degree automatically leads to employment. Also, young people need to realize that college is not some higher, altruistic service institution; it is a business, an educational business that depends on payments from student customers to survive.
Another potential problem with taking out a lot of college loans is the potential for a sudden debt crunch. After graduation, a sudden debt crunch comes, when college loan payments begin but a young person cannot find a job. As one young man described it: “I found no job no matter where I looked, and now my college loan payments are due, over two hundred dollars a month I didn’t have, so what else could I do? I move home, get short-term jobs through a temp agency, send out applications, keep hoping for a break, and start paying for the college education that has yet to pay off for me.”
In tight economic times, no matter what one’s degree of education, a job can be hard to find, and a college loan can be harder to pay off. In such cases, all the skills that come with knowing how to get by on less become very handy—doing without, doing it cheaply, and seeing how little you can manage to live on. In this way, young people can start to learn what their parents already know: that getting by on the living one makes is hard for most people to do.
If debt or finance troubles do send your child home, having him or her convert back to a cash system of operation by “discarding their cards” is usually a good idea. Also, it is often a good time to teach him or her about the hard-to-find fees that are part of subscribing to any ongoing services. Tell your child: The guidelines for recovering and getting back on your feet should be to earn some money; to budget your expenses; to pay as you go; to know what you are paying for; to save what you can; and to start paying back what you owe, the higher-interest obligations first.
Then, when young people have repaid their debt and are ready to move out again, they will do so with the financial knowledge and skills to more responsibly manage spending on their own.
As for building “good credit” in the credit economy in which we all live, parents can explain some of the rules:
The credit economy is not a bad system; parents just need to teach their son or daughter how to manage their participation in the system responsibly and well.
PARENTING PRESCRIPTION