Filial Finance : Children Have More Money Than Ever, and More Spending Savvy
At the ripe age of 5, Joe Hummel is not about to get ripped off with his hard-earned cash.
After doing some cleaning jobs for his aunt to earn the extra 35 cents he figured he needed to buy a Transformer--a toy that changes shape from a car to a warrior--the La Canada Flintridge resident decided to compare prices at different toy stores just to make sure he got the best deal. The result: Joe saved a cool $2.
Joe is part of a burgeoning breed of financially savvy and responsible youngsters who have learned to both earn and spend money at a tender age, said James McNeal, professor of marketing at Texas A&M; University.
McNeal, who studies kids and cash, maintains that children between the ages of 4 and 12 have seen their spending power soar over the last several years. Preteens now have roughly $14.5 billion in disposable income--an average annual income per kid of $423--up 70% from $8.5 billion in 1989, he says. McNeal said about 45% of that is allowances, down from 53% in 1989; 15% is gifts from parents above and beyond allowances, and 21% is earnings from household jobs, up from 15% in 1989. Earnings from work outside the home accounts for about 10% of kids’ income.
What’s more, so-called influence spending--when kids persuade their parents to switch brands or products because of the children’s preferences--is conservatively estimated at about 10 times that, or some $147.1 billion a year.
Indeed, kids are now plying so much economic power that sociologists are beginning to rethink the entire family structure, McNeal said. Traditional matriarchies and patriarchies are being pushed aside by “filiarchies.” Translation: Kids are in control.
To be sure, while kids’ pocketbooks may be fattening, their families may not be any better off. Indeed, there’s plenty of evidence--from unemployment rates and stagnant personal income, for example--to indicate that many parents may be struggling financially.
Instead, researchers say, adolescents have more money to spend because parents are shifting more of the family cash and purchasing decisions to their youngsters.
The reasons for this shift are essentially three--not all of them pleasant. Some experts break them into income-level “models.”
The “high-income” model depicts spoiled and neglected children, who get money instead of time and attention from their parents. The low-income model depicts a “latchkey kid,” who is given responsibility for grocery shopping because his single parent--often a working mother--doesn’t have time to do it herself.
But many experts believe--or hope--that the bulk of children fall into the “middle income” model that the Hummel family represents. Here, partly because of recession-tightened family budgets, parents are increasingly stressing financial responsibility with their children.
In the simplest form, that means they’re not buying as many toys for the kids. Instead, they allow their kids to earn money and do the buying themselves.
Parents maintain that their children become far more discriminating about their wants in short order. And they often learn important lessons in the process.
Jordan Ginn of Tacoma, Wash., for example, said he used to badger his mother into buying him squirt guns all the time. But now that he handles his own money, he’ll only buy “Super Soakers.” And only on sale.
Ginn, 9, has also become more careful about where he leaves his clothes, his mother said. He used to lose jackets all the time. But now that he has to replace lost clothes out of his allowance--which could otherwise be used for toys--he’s not so forgetful, she said.
Whatever the reason, the increasing spending power of children hasn’t gone unnoticed.
Perhaps not surprisingly, the latest in the stream of products geared to kids are books and games designed to teach them how to handle their burgeoning horde of cash.
The children’s financial education market “is exploding,” said Craig Rhyne, president and founder of Monthly Money, a publishing company that creates an allowance and financial responsibility system for children.
“There have always been a certain number of products to teach kids the value of money,” said USC marketing professor David Stewart. “But now there are a whole lot more of them.”
Indeed, the National Center for Financial Education recently compiled a catalogue of 42 recommended money books. Nearly half are geared toward children. Some of the newer titles include “Money Manager for Children,” “Monster Money Book,” “The Kids Money Book” and “If You Made a Million,” said Paul Richard, vice president of the nonprofit group based in San Diego.
Sales are brisk, he said.
Parents want to teach their kids the value of a dollar because it’s something they had trouble learning themselves--and now it’s costing them, Rhyne said.
“A lot of baby boomers were given too much, and we turned into basket cases,” he said. “I think there is a real revolution taking place because people are saying, ‘I don’t want my kids to live this way.’ ”
In fact, many experts say declining living standards may have sparked the cash bonanza in the kids’ market.
Parents’ relationships with their children are governed by the “two Ps”--please and protect, said McNeal. In good times, they tend to stress pleasure. In bad times, they stress protecting the children from the bad things in the world--such as poverty. And that’s caused many adults to get serious about teaching their kids about the value of money, he noted.
Once it happened, though, the trend fed on itself because many parents learned a valuable lesson about their kids. To wit: By and large, kids not only like dealing with cash, they’re good at it.
“They soak this stuff up,” said Linda Sanders, president and chief executive of Young Americans Bank in Denver. “Children understand that money is power. And learning to manage money is not just learning to manage power, it is also learning to manage what kind of life you’re going to have.”
Concepts that parents embrace in theory but not always in practice--such as saving, repaying debts promptly and weighing product choices by both price and performance--seem to get more than lip service with kids.
When buying for themselves, children tend to check prices and product claims. If an advertiser says a toy will do a particular thing and it doesn’t, word-of-mouth sends that product into a nose dive, said Rena Karl, managing editor of the Marketing to Kids Report, an Encinitas, Calif.-based monthly that reports on the youth market.
Kate LaBonge, a 7-year-old Glendale resident, underscored the point. She recently stopped a friend from buying a “magic troll” doll by explaining that, despite the advertising claims, the trolls don’t have any supernatural powers.
“We think about kids as being very vulnerable,” USC’s Stewart said. “But by the time they are 10 or 12 years old, they have learned a lot, particularly about the world of products.”
More concrete evidence about the financial responsibility of kids comes from savings patterns. McNeal, who conducts extensive surveys to determine how much money kids have and how much they spend, said kids saved only about 10% of their income in 1984. Now they’re saving about 40%.
