Optimistic Teens May Need Financial Reality Check, Schwab Survey Shows

Findings reveal opportunities for parents to help their teens master the basics of 21st century money management


SAN FRANCISCO, March 27, 2007 – Optimistic teens may need a reality check about the world of personal finance awaiting them, according to the findings of Teens & Money, an annual survey released today by Charles Schwab & Co., Inc. Most teens believe they will achieve considerable success in the adult financial world, yet may not realize what it will take to achieve it based on self-reported knowledge and behavior.

Highly motivated by money, eight in 10 teens ages 13-18 agree that “it’s important to me to have a lot of money in my life,” and nearly three-quarters (73 percent) believe they’ll be earning “plenty of money” when they’re out on their own. In fact, American teens confidently predict a future in which, based on the career that interests them most, they will be earning an average annual salary of $145,500 (boys expect $173,000 vs. girls, $114,200). The reality: Only five percent of the U.S. population currently earns a six-figure income, and the average national wages stand at approximately $46,000 .

Not surprisingly, teens look forward to financial independence. Most (88 percent) want and expect (86 percent) their parents to stop supporting them before age 25. Yet in a recent Newsweek poll, almost half of all college students graduating in 2006 said they were moving back into their parents' home after graduation .

“It’s great that teens are optimistic about their futures, but the reality is that these kids will face financial choices and decisions that are far more pressing and complex than anything their parents or grandparents ever encountered,” said Carrie Schwab Pomerantz, chief strategist of consumer education at Charles Schwab & Co., Inc. “The best single piece of news from this year’s survey is that teens not only want the keys to the world of adult finance, they are actually looking to their parents for driving lessons.”

What Teens Don’t Know
Nearly two thirds (62 percent) of American teens ages 13-18 believe they are prepared to deal with the adult financial world after high school, and a similar majority (63 percent) say they are knowledgeable about money management, including budgeting, saving and investing. Yet when probed on the specifics of their financial knowledge, they reveal gaps that do not correspond with their confidence. For example, fewer than half consider themselves knowledgeable about how to budget money (41 percent), how to pay bills (34 percent), how credit card interest and fees work (26 percent) or whether a check cashing service is good to use (24 percent). Not surprisingly, even fewer teens know how income taxes work (14 percent) or what a 401(k) plan is (13 percent).

“These findings point to a huge opportunity for parents and grandparents,” said Schwab Pomerantz. “It’s not only the basics of budgeting and borrowing that are important; it’s also helping teens understand that investing in an employer-sponsored retirement plan as soon as they get the opportunity could make a life-changing financial impact over time.”

Teens Spreading Their Adult Financial Wings
Today’s teens are active spenders, savers and borrowers. They spend an average of $19 in a typical week, with the majority (59 percent) making purchases online. Most teens (84 percent) also have some money saved, with average savings of $1,043. However, teens are more likely to have a cell phone (74 percent) than a savings account (60 percent).

Although 88 percent of American teens “don’t like the way it feels to owe someone money,” almost a third (29 percent) have incurred debt (close to $300, on average). More than half (51 percent) believe that “it is easier to buy things with a credit card than cash” and, given the choice, more than a quarter (29 percent) would actually prefer using a credit card, a 61 percent increase in this stated preference over last year. This statistic is particularly alarming in light of the fact that revolving credit in the U.S. (mainly credit card debt) has been steadily climbing over the past 20 years, more than quintupling from $141 billion at the end of 1986 to approximately $879 billion at the end of 2006 . This translates into an average of $4,100 in credit card debt for every American over the age of 18.iv

More than three-quarters (79 percent) of teens surveyed agreed that money matters are different today than when their parents were teenagers.

Teens Want to Learn, and Look to Their Parents
The good news is that teens want to learn more about personal finance. Nearly nine in 10 say they want to learn how to make their money grow (89 percent). Two-thirds (65 percent) believe learning about money management is “interesting,” and 60 percent say that learning about money management is one of their top priorities. Almost two-thirds (64 percent) say they would rather learn through experience than in a classroom.

Unfortunately, however, teens aren’t getting the financial coaching they need. Fewer than one in three (30 percent) believe their parents/guardians are concerned about making sure they are learning the basics of smart money management, and only about one in four (28 percent) report “My parents/guardians have taught me about money by giving me a lot of experience budgeting, spending and saving it.” A minority (24 percent) say their parents/guardians have taught them how to use a credit card responsibly. And, in spite of teens’ interest in the topic, only one in five (20 percent) report “my parents/guardians have taught me how to invest money wisely to make it grow.”

“You can’t read these survey results year after year and not be compelled to become part of the solution,” said Schwab Pomerantz. “Since 2004, we’ve promoted financial literacy for teens through Charles Schwab Foundation’s work with Boys & Girls Clubs of America and the program Money Matters: Make It CountSM. In the next few weeks, Schwab will be launching a new Web site with tools for parents and other concerned adults who would like to help teens learn the most important life skills about money.”

About the Teens & Money Survey
The Teens & Money survey was conducted by StrategyOne, an applied research consulting firm, on behalf of Schwab and Boys & Girls Clubs of America. The nationally-representative online survey polled 1,000 American teens between the ages of 13-18 to better understand their views, behavior and knowledge of spending, saving, borrowing, and earning money. The survey, which has a margin of error of plus or minus 3.1 at the 95 percent confidence level, was conducted using the field services of Harris Interactive.

About Charles Schwab
The Charles Schwab Corporation (Nasdaq: SCHW) is a leading provider of financial services, with more than 300 offices and 6.8 million client brokerage accounts, 584,000 corporate retirement plan participants, 150,000 banking accounts, and $1.3 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Schwab Institutional division. The Charles Schwab Bank, N.A. (member FDIC) provides banking and mortgage services and products.

CyberTrader®, Inc. (member SIPC, http://www.sipc.org) is an electronic trading technology and brokerage firm providing services to highly active, online traders. More information is available at www.schwab.com.

Funded by the Charles Schwab Corporation, Charles Schwab Foundation is committed to giving back to the community by supporting employee-selected causes and fostering financial literacy through funding, involvement and expertise.

Additional survey details are available at www.aboutschwab.com/teensurvey2007.pdf .

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