What your kids learned from the crash

By Dan Kadlec

(Money Magazine) -- Recently I asked my 20-year-old daughter what she had learned about money during the Great Recession. I half expected her to say, "Nothing, Dad. Can we skip the teachable moment?"

After all, she's been snuggled away in college with Mom and Dad footing her tuition, room, and board; her personal world remains secure. About the only financial dislocation she's experienced, as far as I could tell, was my refusal to upgrade her cellphone.

Instead, Lexie surprised me with her thoughtful answer. Teacher cutbacks had resulted in fewer classes, she told me, so she'd been squeezed out of one of her major's requirements last semester. That made her realize that she's not insulated from the economy's ups and downs and that she must be able to adapt to events outside her control.

She also told me of friends who couldn't find summer jobs -- though the camp where she worked the past two summers rehired her in a heartbeat. That showed her the value of performing at work and of building a résumé.

What other insights will teens and young adults take away from the financial crisis? With the second anniversary of the fall of Lehman Brothers, marking the unofficial start of the meltdown, upon us, this seems like a good time to ponder that question -- and to contemplate what parents can do to reinforce the wisdom our kids have gained.

The lesson: Money isn't just for spending

One thing is certain: My daughter is not alone in feeling the economy's ripple effects. Some 95% of college students surveyed by the National Endowment for Financial Education reported the crisis had affected the way they manage money and their family's finances. Here's

As a result, they seem to be adopting more responsible financial habits. Since the economic crisis began, more than half of 18-to 29-year-olds have cut spending, and a quarter of them have beefed up savings, according to a survey by the Pew Research Center; 58% intend to save even more when the economy recovers.

Fellowes reports more college students are querying his site about how to pay off credit cards and build an emergency fund. "Kids are giving a lot of thought to creating an economic cushion," he says.


Talk about money. College students whose parents discuss financial matters with them are more likely to avoid impulse spending and less likely to run up credit card balances, according to a study in the Journal of Economic Psychology. So talk about budgeting, saving, borrowing, and investing as everyday opportunities present themselves.

Provide inducements. Create a homegrown version of a 401(k) by offering to match any money your child puts into a long-term savings account. You might even match his entire income from a summer job and deposit the money in a Roth IRA to give him a head start on saving for retirement, suggests Laura Levine, president of the JumpStart Coalition, which promotes teen financial literacy (he can also tap the account penalty-free to pay for grad school or a new home).

The lesson: Caution isn't just for old folks

The 37% plunge in stock prices in the six months following Lehman's collapse, combined with the volatility that's plagued the market ever since, may be turning young people into fogeys when it comes to investing. Four out of 10 twentysomethings in the Pew survey reported they've become more conservative investors since the recession hit.

On the plus side, maybe that means they won't load up on tech stocks the way their parents did, and maybe they'll be less likely to fool themselves with unrealistically high expectations about the returns on stocks or real estate.

But being overly cautious won't serve them well either. After all, $10,000 invested in stocks 30 years ago would be worth about $180,000 today -- even after the lost decade just ended -- vs. $120,000 for government bonds and just $50,000 for bank CDs.


Share war stories. Explain how you took a big hit during the crash, but that you've since recovered all or most of your losses by staying diversified. Tell tales about people they know -- like how Grandpa was able to retire early and well on his stock portfolio.

"Negative examples, like the relative who's struggling now because he played it too safe when he was young, are even more memorable," says University of Washington professor Lewis Mandell, who studies teen financial literacy.

Start with the familiar. To get your adult child excited about investing, encourage her to buy shares of a company with good prospects whose products she enjoys, says Vince Shorb, president of the National Financial Educators Council. Prime examples: Nike (NKE, Fortune 500) or McDonald's (MCD, Fortune 500).

Teach her to spot such a stock by looking for market dominance and strong projected profit growth. Another option: the Monetta Young Investor Fund, which has a low minimum ($100 with automatic monthly investments of $25 or more) and is full of names teens and twentysomethings will be familiar with, including Apple (AAPL, Fortune 500), Google (GOOG, Fortune 500), and Starbucks (SBUX, Fortune 500). Over the past year, the fund is up 26%, beating the market by 11 percentage points. But warn your child that she shouldn't expect that outperformance to last indefinitely.

The lesson: Managing your job is a job

With the unemployment rate at 25% for teens and 15% for 20- to 24-year-olds, young people are acutely aware of the difficulty of landing a good job.

"The single biggest challenge for twentysomethings is finding work in a market full of down sizing," says Joline Godfrey, CEO of Independent Means, a financial education organization. Increasingly, they're stepping up to the challenge, building résumés and contacts while still in school through internships and extracurricular activities.


Be a career coach. Encourage your son to take a class in new-economy skills like digital technology or Mandarin Chinese. And those internships really do pay off: Three-quarters of companies recently surveyed by the National Association of Colleges and Employers said they strongly prefer job candidates with relevant experience as an intern.

Get the message across by letting your daughter know you're willing to bridge the gap between what an internship might pay and how much she can make next summer as, say, a lifeguard or waitress.

Make an introduction. Kids are most likely to find jobs through connections, just as Mom and Dad are. Don't be pushy, but do offer to help by, say, inviting your son to go with you to a conference or charity event where you'll be mixing with people who could turn into prospective employers, or suggesting acquaintances your daughter might contact for an informational interview.

The lesson: You are responsible for you

"The sense that someone else will always take care of you has been greatly diminished," says JumpStart's Levine. "Teens over the past couple of years are accepting a certain level of personal responsibility they did not accept before."


Put your teen on a budget. Give your child a set amount a week to pay for personal expenses, and don't bail her out if she runs low on cash. Instead, suggest ways she can earn more. "Saying no ignites the creativity in teens," says Sharon Lechter, founder of payyourfamilyfirst.com.

Attach strings to help. Nearly a quarter of adults under age 30 have moved home since the recession started. Lend a hand when needed, but don't become a permanent backstop. If your child has been laid off, make it clear you expect him to look hard for a new job; if he's working, Godfrey suggests, charge a nominal rent, then put the money in an account you can later turn over to him to help pay for his own place.

Be a role model. The best way to reinforce sound financial habits is by example. That's why I refused my daughter's request for a cellphone upgrade until she'd spent two years with the old one, which worked fine, thank you just as I do myself.

With additional reporting by Susie Poppick contributed to this article. To top of page

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