Teenagers can't budget

Teenage children are preparing to take on credit cards, loans and overdrafts when they turn 18, despite not being able to undertake basic budgeting tasks efficiently, according to a new study by the AXA Financial Task Force.

According to the AXA group, which consists of independent psychologists, economists and industry experts, as many as 44 per cent of 15 to 17 year olds are planning to take out a credit card when they become an adult; 18 per cent are thinking of taking out a bank loan when they turn 18 and a further 17 per cent expect to be overdrawn.

But the findings of a nationwide investigation into the financial habits of 15 to 17 year old children also reveal that teenagers are unable even to stick to a basic budget for the week. Some 70 per cent of teenagers failed AXA's week-long budgeting experiment, which took 20 children from Middle Britain backgrounds and handed them control of the household budget for a week.

The AXA Financial Task force set up the experiment to uncover how the next generation will cope with their finances upon reaching adulthood. As a whole the group overspent their budgets by 16 per cent, with only a minority successfully managing to spend within the £248.40 they were handed at the beginning of the week. One child spent over double his allocated budget, forking out some £597.73 in just seven days.

And members of the AXA Financial Task Force have expressed concerns about children's ability to deal with money well once they become an adult. Throughout the experiment, children often decided to continue to treat themselves to luxuries at the expense of others despite the fact 77 per cent had funds from paid jobs and 55 per cent received pocket money.

Professor Nick Chater, a member of the AXA Financial Task Force, said: "These studies emphasise what a huge challenge budgeting can be when you're still relatively new to managing money and making regular financial decisions. Many teenagers are on the cusp of leaving home for university or to get a job and while some will naturally approach money with diligence, our study suggests that they simply may not be able to cope with budgeting effectively.

"This may explain why so many children are already considering getting overdrafts and credit cards. These things are seen as the norm so that teenagers think they're only doing what is typical in expecting to get into debt sooner rather than later.

"Some teenagers also have spendthrift financial habits because they are used to getting what they want, when they want it. Over half of our respondents said their parents give them more money if they run out and one in five knows they will get what they want, if they are persistent enough in their requests."

AXA's budgeting experiment came as a shock for both sides when switching financial control from parents to children. Teenagers typically took on the task with close care and attention, with some taking a strict line with their parents and others wishing they'd been stricter. Children typically came away surprised by how hard budgeting is and how rapidly the money leaks away, having overspent in just one week.

Starting the experiment on Monday, the majority of participants had little or no money by the weekend, as a result the cost of weekend activities and much needed grocery shopping pushed them over budget. The majority also failed to keep some money aside in case of emergency, as 65 per cent failed to come to terms with a surprise demand for extra cash from parents - a tactic built into the experiment.

Steve Folkard of AXA added: "Few teenagers succeeded in the challenge of controlling the household budget for a week, despite in many cases trying very hard to make ends meet. Whilst we fully support the Government's plans to introduce essential financial life skills as part of the maths GCSE, our experiment shows that the teaching of this subject should be based around practical lessons in budgeting rather than being based on theory and we will be recommending that this is a key part of the syllabus."

"The AXA Financial Task Force is committed to investigating how we can motivate people to make better financial decisions and the kind of role-reversal seen in our experiment can provide valuable insights into the perspective of children and how they think about money. But it also emphasises the value in ‘doing' rather than ‘telling' as most of the teenagers involved we startled by how difficult basic budgeting can be."