“Be a CFO at age 12”
Young people in a spiral of debt can find it hard to escape. One effective way to prevent this is the “youth wage”. In her study, Claudia Meier Magistretti of the Lucerne University of Applied Sciences and Arts shows how this fosters personal responsibility and financial knowledge among the young.
Online shopping, longer shop hours, leasing and credit card offers – consumption has never been so easy. But are these temptations driving young people in Europe into debt?
There are no signs yet of what might be described as “Generation Debt” or “Generation Credit”. Debt and overindebtedness among people ages 18 to 25 is no higher than it is among people ages 30 to 50. But there is a significant level of youth debt in all countries. And above all, the situation of young people with debt is especially dire.
Why is that?
People who become indebted early in life can easily fall into a spiral of debt. This often occurs when young people move out of their parents’ house. If they get lost in a thicket of outstanding bills, reminders and debt collection notices, the debt can quickly pile up to dangerous levels. Those who become indebted early in life may be unable to pay for missed initial or further training, experience a decline in their credit rating and be unable to support a family. In short, they may see their future ruined.
Is indebtedness the result of a lack of financial literacy?
No. Understanding how compound interest works does not automatically protect you against compulsive shopping. The main problem is not a lack of knowledge, but materialistic values. Psychological aspects play a key role.
What aspects are you referring to?
The risk factors for becoming indebted include a lack of trust in one’s own abilities and being highly susceptible to suggestions as well as a lack of impulse control.
What can be done to combat these factors?
It is important to do away with the taboo of talking about money and teach children how to handle finances responsibly at an early age. These are the basic elements of the youth wage – a good educational model developed in Switzerland (see box).
What is the difference between this youth wage and an allowance?
The youth wage involves certain obligations. According to the model, starting at age 12 children receive between CHF 100 and CHF 300 – depending on their age – from their parents each month. They manage this money themselves and use it to pay for certain needs, such as clothes, shoes, a mobile phone and haircuts. They can use whatever is left over as an allowance. The children decide for themselves how much to use for their various needs.
Do they have to provide an accounting of their spending?
This isn’t part of the model, but parents handle this differently. Some never ask how the money is spent, while others require a list of expenditures in the first few months in order to see where the money is going. Some never give up full control. That’s okay, because young people are very different and every family has its own culture.
You assessed the effectiveness of the youth wage in a study. Isn’t so much personal responsibility too much for many young people to handle?
Absolutely not. Very few find it difficult. It gives nine out of ten teenagers the confidence to deal with money. They learn how to think ahead and plan better. They become more price-conscious, are more careful with money and learn how to differentiate between what they need and what they want.
What do parents do when their teenager does not abide by the rules and spends all of his or her money on things they don’t need?
In fact, there are young people who use their first youth wage to buy a PlayStation or a TV. And then they don’t have the money for the agreed expenses. Parents need to let their children make these mistakes. It’s the only way they’ll learn. If they intervene too soon, then their children won’t learn any lessons. But only a small minority of children have this problem.
And what should parents do if the agreed amount simply isn’t enough for their son or daughter?
If the amount isn’t enough or their children’s wants increase, the parents need to show how they can earn the money they need by, for example, babysitting, running errands for an elderly neighbour or doing extra chores around the house. Parents should absolutely avoid giving their children a top-up at the end of the month because they’ve used up their budget already. Doing so is dangerous because then the children will not learn any lessons.
Do children like having so much autonomy?
Young people feel like they’re being taken seriously and more adult. They are proud to be a CFO at age 12. In 97% of the cases, teenagers developed greater personal responsibility and autonomy in money matters as a result of the youth wage.
You write that the youth wage can also have a positive impact on family life. How so?
It can ease tensions because it makes money a normal topic in the family rather than being a point of contention. But the introduction of the youth wage also represents the start of a new life stage as well. The parent-child relationship changes from one in which the parents decide everything to one in which they provide the child with advice. This step requires courage, but it is worth it.
Youth wage model
The youth wage is an educational model that helps young people manage a portion of their living expenses on their own. This allows them to learn early on how to recognise realistic living expenses and handle money. The idea was developed by Swiss psychologist and family therapist Urs Abt in the 1970s. According to the model, children receive between CHF 100 and CHF 300 from their parents each month. The youth wage is intended to cover daily expenses (excluding housing, food, insurance, health costs and school fees).
Prof. Claudia Meier Magistretti teaches and researches health promotion, prevention and public health at the Lucerne University of Applied Sciences and Arts and the University of Applied Sciences and Arts Northwestern Switzerland.
Together with Prof. Anja Herrmann of the University of Applied Sciences and Arts Northwestern Switzerland she has published the “Youth Wage Study 2018: Youth Wage. Evaluation of Access, Implementation and Benefits for Young People and Families”.