Chronic societal stress makes many teenagers—and especially girls, ethnic minorities and those with limited parental relationships—more likely to overspend and less likely to save money.
This according to a new study co-authored by Detra Montoya, marketing professor at the University of Washington Foster School of Business.
Montoya and Maura Scott of the University of Kentucky analyzed the social experiences and financial behavior of teens representing different ethnic backgrounds and geographic regions. From this analysis, they identified a chronic vulnerable state that many teens experience when they encounter continual stresses in the home, the community and the media. “Lifestyle-based depletion” occurs when teens are barraged by racial stereotypes, lack of positive role models, unrealistic media images, limited parental relationships, financial hardship and/or the need to play multiple roles in their household.
Montoya and Scott found that chronic exposure to one or more of these stressors can predispose a teen to make financial decisions that go against his or her long-term best interests. They found that ethnic teens, young females and teens with poor parental relationships are at highest risk to exhibit potentially damaging financial behavior.
Marketers obsess on the youth demographic. This prestige population of consumers holds powerful purchasing power. But Montoya says that many teens are not sufficiently equipped to manage the endless assault of media messages—both overt and covert—that exhort them to spend… on smart phones, apps, shoes, skinny jeans, cosmetics, electronics, energy drinks, hamburgers, body wash… Enough is never enough.
This vulnerable financial state is exacerbated by stresses roiling the lives of many teens.
“There’s a lot of research showing that people make poorer choices when they are depleted—tired, hungry, stressed,” Montoya says. “Depletion compromises our ability to regulate self-control, emotions, decision making, problem solving. We wanted to investigate the effects of social stresses on the financial decisions of young people.”
To establish the components of lifestyle-based depletion and gauge its effect on teen financial behavior, Montoya and Scott surveyed and interviewed Caucasian, African American and Hispanic teens in several locations across the country.
They found that highly depleted teens tend to make financial choices that seem perfectly rational to them, given the messages they receive, the stresses they perceive, their compromised self-esteem and the uncertainty of their circumstances. So they spend too much, save too little and rack up credit card debt. Viewed objectively, these decisions do not serve their best long-term interests.
Early financial education
Montoya says that understanding the drivers of teen financial behavior may have much larger ramifications on the economy—generally run by adults—which has been riddled by increasing personal debt and decreasing personal savings over time. “Although understanding the financial decision-making behavior of adults is critical,” Montoya says, “gaining insight into teenagers’ decision-making can help assess the development of such behaviors.”
Given her study’s findings, Montoya believes the solution is early financial education.
She notes that 37 states currently do not require a personal finance course in high school. In states that do, students display comparatively responsible financial behavior. This is to say, increased savings, less compulsive buying and more rational credit card use.
“We are encouraging states to include financial education as a requirement,” Montoya says. “But we also want to look at some financial literacy programs even prior to high school. Some of these kids will start handling money at very young ages, and high school drop-out rates for African Americans and Hispanics are so high that many will never benefit.”
Beyond the classroom
Montoya and Scott also look beyond the school. The delivery of personal finance education could take place in churches, community centers, even as a component of the social services a family receives. In fact, the authors believe that teen finance education may be more effective if it is delivered in the context of the family (a possible topic of future research).
“We think that early on we can intervene and help teens manage the stressors that result in lifestyle-based depletion,” Montoya says. “And if they develop skills at an early age, they will be better equipped as adults, when they are balancing household budgets, buying homes and cars and making long-term financial decisions. In the long run, educating teens will benefit society over all. Overspending is a cost to everyone.”
“The Effect of Lifestyle-Based Depletion on Teen Consumer Behavior,” is forthcoming in the Journal of Public Policy & Marketing.