Spending habits

Key topic

Today’s lesson revolves around spending habits. We will take a brief look at key trends in teenage spending; where you spend your money and how you go about it. We will then examine good and bad spending habits, before exploring some ways that can help you change and improve your spending habits.

Learning objectives

• Find out key trends about consumption among teenagers
• Understand the difference between bad and good spending habits
• Figure out ways to distinguish between good and bad spending habits
• Develop good spending habits

Where teenagers spend their money: Teen spending habits

Teenagers today are very different from teenagers four or five decades ago. Teens nowadays are aware of brands, influencers and social media, and they make up a considerable part of the population that spends a significant portion of their money on clothing, footwear, video games, food, cellphones, and so on. Teenagers get the majority of their financial support from their parents, but they also make a respectable amount of money through part-time employment in combination with their education. So, let’s start with a brief overview of teenage spending habits; your habits. This will help us establish a baseline for the rest of the lesson.

As you know better than us, teenagers enjoy spending their time online, or their local mall for an afternoon with friends and so on. Piper Jaffary, an investment bank, has conducted a survey of teenage spending habits in 2021. According to their research, Generation Z which is your generation (born between 1996 and 2010), contribute $830 billion in retail spending, although, in 2021 we observed the lowest spending level among teens since 2010. Nonetheless, 83% of teens own an iPhone and over 50% use Amazon for their purchases. Teenage girls specifically spent 27% of their overall spending on clothing while teenage boys spent 23% of their overall spending on food and 9% on video games.  Compared to middle class adults, teenagers spend 14-times more on food 8-times more on books and clothing and 2-times as much on entertainment.

There are several underlying characteristics of teenage spending habits. Teenagers tend to compete with peers about who owns the latest fashion or luxury items. Teenagers are also more likely to spend impulsively. In other words, they are more likely to buy without reflecting if they actually need what they are about to buy or thinking about the consequences. Moreover, teens are more likely to be overly-generous in an attempt to be liked; that is not a good spending habit as we will see later.

Finally, a report by TD Ameritrade revealed that 50% of teenagers save money and 40% of them have a budget in place for the management of their money. That is not good enough though. It is important to develop awareness for savings and budgeting early on in order to master the skills by the time you become a fully independent adult. It is important to start doing it in your teenage years because you will make mistakes and learn from them, discover your weakness and work on them and test your financial skills when you can afford to get a few things wrong.

Let’s watch a 3-minute summary clip of teen spending habits

How teens are spending their money — And why food is the top priority

Were you surprised by the fact that teenagers mostly spend their money on food?  Does this apply to you as well?

Good spending habits

Good spending habits are the basis of a healthy financial lifestyle. Learning good spending habits during your teenage years will go a long way in preparing you for money management during adulthood. As we saw in the previous section, teenage boys spend most of their money on food, which makes sense; teenagers are hungry all the time because they are in a growth spree. There is not much to be done about it, other than setting limits on the quality of food and avoiding unnecessary junk and unhealthy food. On the other hand, If you’ve bought a pair of sneakers last month, and if you went to buy a new pair this month, then you probably need to rethink your spending habits.

Good spending habits are defined as much by what you buy as the preparation you make before buying them. Good spending habits are all about meaningful and, above all, controlled consumption. Good spending habits do not imply that you buy healthy food or cheap clothes and footwear, or refrain from buying video games. Examples of good spending habits:

• You give a small amount of your money to charity
• Whenever you get paid from your part-time job, you take out your family for dinner
• When you get a good grade in school, you reward yourself with a meal from your favorite restaurant

Good spending habits are all about having a budget, spending within your means (preferably less than what you have), that you do not go into unnecessary debt – in your age that means not going into debt at all – that you save, that you do not violate your principles and ethics and that do not spend recklessly. In other words, it means you have a plan, mission and goals. They key is to do the necessary prep work; once you do so, everything will be easier and the likelihood that you develop good spending habits will increase exponentially.

Consequently, given that you are still at a young age, it means that you will be able to test different methods and ways to go about it without any serious consequences since you do not have any real financial obligations such as loans or bills to pay. This will enable you to learn without all the stress that adults face when they have to make financial decisions.

Here is a checklist that can hint whether you have good spending habits or not:

• When some money comes in, I usually set aside a small amount of cash as savings or deposit it into a bank account.
• I keep track of the money I receive from all sources.
• I set aside money for my regular/ fixed weekly expenses.
• My money is managed according to a written spending plan (also known as budget).
• For purchases I usually compare prices to ensure that I get the best deal.
• I don’t eat out unnecessarily more than twice a week.
• I am saving money towards my college education.
• I have given money/food/clothing or anything else to a charity in the past month.

Action Steps – Exercise 1 (7 minutes)

• Take a look at the above list and tick all the statements that apply to you.
• Inform the kids that if they have ticked more than four statements then they are in the right path. If they ticked over two, they are not doing bad at all but they need to do more. If they’ve ticked less than two, then they need to reconsider their spending habits.

Bad spending habits

Bad spending habits are the result of reckless, aimless and impulsive spending which boils down to lack of financial knowledge. Your parents will likely discuss with you and teach you numerous things ranging from things such as sports to good manners and proper behavior. You will discuss relationships, friendships, your role in the community, yet a lot of the times parents will fail to equip you with the tools that will prepare you for making financial decisions, despite the fact that financial choices will take up a lot of your time as adults. This can in turn lead to bad spending habits during adulthood that can take a toll on your financial and mental well-being, and it can be hard to rid yourselves of them.

Some common bad spending habits are:

1. Pointless online shopping– Nowadays purchasing something has become easy, perhaps too easy. You don’t have to get in the process of travelling to the shop, identifying something you like, seeing the price, trying, reflecting whether to buy or not. Now you can skip most of these steps and just click a ‘buy’ button on your smartphone or computer, which plays down the fact that you are spending money. Online shopping can be addictive and can lead to excessive spending.
2. Daily coffees– You might be buying smoothies, milkshakes etc. instead of coffees but the result is the same. These kind or purchases can seem harmless but when you add them up 30 days a month, 12 months a year, then the amount can be staggering. We’re not suggesting that you cut them out altogether, but it would be better to reduce them and instead make your coffee, milkshake, smoothie at home more often.
3. Not cancelling unused subscriptions– We all subscribe to things that we use for a month or two and then stop using them. People tend to procrastinate and never cancel such subscriptions which can be a horrible money-draining activity. Are you not using your Amazon prime, Netflix, World of Warcraft subscription? Make sure to cancel them.
4. Not learning that you have to save in order to purchase– Some of the most important purchases a young adult will make are going to be large, such as your first car. 99% of people will have to save for a number of months in order to make that purchase. When you are a teen is far too easy to ask your parents for money which can lead to a failure to realize that sometimes you have to be patient and save before you get what you want.
5. Spending all your money– This can make you too dependent upon convenience and luxury items (since all the essentials are provided by your parents, you just spend money on wants not needs) and you never learn the valuable skill of saving.

Let’s watch a 5-minute clip on why we tend to impulse buy:

Why do we have so much stuff?

Here’s a checklist to determine if you have developed bad spending habits:

• You don’t know how to plan your spending (budget).
• You always pay full price. You don’t do your homework before buying.
• You don’t know what motivates your spending
• You constantly overspend your allowance
• You haven’t thought about saving for higher education, for example
• You have never calculated your expenditures over a month. You don’t keep track of what you spend
• You always rely on your parents when you run short of money and can’t get what you want

Action Steps – Exercise 2 (7 minutes)

• Take a look at the above list and tick all the statements that apply to you.
• Inform the kids that if they have ticked more than four statements then they are in real trouble and need to seriously reconsider their spending habits. If they ticked over two, they are not doing that bad, but they need to do more. If they’ve ticked less than two, then they are more or less fine.

Adopting good spending habits

If you’ve just discovered that you developed bad spending habits, don’t worry since you’re still young and provided that you are willing to reconsider then you can easily work on your weaknesses. This is the purpose of this section. The younger you are, the easier it is to change your spending habits and adopt proper ones that will guide you to and through adulthood. The easiest way to drop bad spending habits is to replace them.

Adopting good spending habits will help you save more, stick to your budget, reduce the stress associated with finances during adulthood and enjoy the full benefits of your income. As we previously stressed, good spending habits are all about establishing the right foundations and doing the necessary prep work. Below is a list of the things you need to do to achieve that:

1. Track your spending– Sit down and think of everything you buy. Do that for 3 months in order to make your findings more reliable. Calculate all your expenses. See how much money you spend and what you need to change. This will depend on the individual and you need to use critical thinking. Most importantly, by tracking your spending you will be able to identify excessive and unnecessary spending more easily. For example, buying three sweaters in the last 2 months might sound ok. But when you calculate that it cost you $200 to do it, you might want to reconsider in the future
2. Set a budget– Without setting a budget, which means a list of estimated income and expenses, people can find themselves in a tricky situation. Utilizing a monthly budget is the best way to monitor monthly spending. This is the bible of finances. You should come up with a monthly budget based on the previous step and on the amount of your allowance plus any errand money. You should treat your budget as the law. It should never be violated.
3. Save– This should certainly go into your budget. You should pre-determine an amount for savings whether for a future large purchase or college education etc. We will discuss savings in more detail in a later lesson.
4. Reduce impulse buying– If purchases aren’t closely monitored, impulse buys can lead to bad spending habits as previously stressed. Your money may be carelessly spent each month and lead to the development of bad spending habits. When you want to make an impulse purchase, try to wait for at least 7 days, or if you can make it a month. After this, if you are still keen on buying whatever it is you want to buy, go ahead. At the very least, this avoids the ‘impulse’ part and forces you to take time to consider if it’s worth it.
5. Keep an eye out for prices– if product YZ is available in numerous places, take some time to do your research and find out where out of these places you can get the best deal. You can avoid overspending by comparing prices whether you’re purchasing headphones or a car. It could be worthwhile looking into a used option, depending on the item.
6. Think of your future and focus on your goals– Keeping in mind the big picture and your financial goals are one of the easiest ways to stay on track when it comes to good spending habits and avoiding bad ones. After all, why spend less than you make? Why budget? Why save? The answer to all these questions should be the basis of your goals, whether those are saving to buy a new phone or subsidize your college education. These can keep you focused and determined to stick to your financial plans.

Lesson wrap-up

Today’s lesson was about spending habits. We began by looking at current and past trends of teenage spending habits before explaining what good spending habits are. Good spending habits, as we explained, are the result of the combination of prep work and setting the right foundations. We then moved to bad spending habits and provided several examples for this category. For both good and bad spending habits, we provided a checklist that can help you determine if you’ve developed either bad or good spending habits. Finally, we briefly looked at ways that can help you develop good spending habits such as saving and budgeting.

At this point we will wrap up today’s lesson.  First, we will go over the learning objectives of this lesson and we want your feedback as to whether they have been achieved and then we will address any questions you may have.  Please feel free to ask anything you’d like in relation to today’s lesson and we would love to hear how the concepts we discussed today relate to you and your life!