Will Today's Teens Out-earn Their Parents or Just Live in the Basement Eating Wheaties?

NEW YORK (MainStreet)—One in four teens expects to be 25 to 27 years old before becoming financially independent from parents, according to a new study from Junior Achievement USA and The Allstate Foundation. Michael Horan is one of them. The 18-year-old from Duluth, Georgia plans to study orthodontia for the next several years. "By 25, I think I'll still be needing help paying for dental school," he said. "So 27 is what I'm aiming for."

A lot more teens, including many who aren't in dental school, anticipate being dependent on parents until their mid-20s these days. This 2013 Teens and Personal Finance Poll found twice as many teens -- 25% compared to 12% in 2011 --didn't anticipate achieving financial independence until 25 or later.

Stephanie Bell, spokesperson for Junior Achievement USA, a nonprofit financial literacy organization based in Colorado Springs, Col., called the results surprising. "Those of us who are parents might be shocked to learn that teens might be depending on their parents for almost 10 years past the time you think a teen might move out of the house," Bell said.

That's not the only surprise lurking in recent research into twenty-somethings living at home. A recent Clark University poll of parents whose 18- to 29-year-old children lived with them found 61% were "mostly positive" and only 6% were "mostly negative" about the arrangement. Among benefits most parents cited were feeling closer to kids, getting help with household responsibilities and having more companionship, reported Jeffrey J. Arnett, a research professor of psychology, co-author of a new parenting guide, When Will My Grown-Up Kid Grow Up? (Workman, 2013), and director of the annual Clark U. poll.

Although they may be staying home longer than previous generations, today's teens are also more likely to expect they will eventually climb higher on the economic ladder than their parents. Compared to the 2011 poll by Junior Achievement and Allstate, that optimistic group increased by 20%.

Optimism is tempered by reality for many young adults who have watched parents navigate the so-called Great Recession of 2007 to 2009. Cardin McKenna, 23, just graduated in May 2013 from the University of Georgia with a finance degree and considers out-earning her parents more of an aspiration than a certainty.

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"I would definitely like to think that, because that's what everyone wants to think," McKenna said. "The short answer is 'yes'; the practical answer is 'I hope so.'" For now, she's deciding whether to test her skills in the job market or go back to school for more education.

While the job market is a concern for many teens and recent college graduates, experts in personal finance find additional cautionary content in studies of what young people know about managing their personal finances. For instance, the Junior Achievement poll revealed that 33% of teens do not follow a financial budget. "It's kind of disconcerting that a third of teens don't see the importance of using a budget," Bell said.

Similar weaknesses showed up on the topics of credit cards, with 20% of teens unsure of their ability to manage plastic, and investing, where 34% expressed a lack of confidence. Saving for college, which would seem more pertinent, had not been discussed with parents by nearly 30% of teens. It's hard to blame teens for not knowing something they haven't been taught, of course. And that's very much the case with financial knowledge, with only 29% of teens saying their schools had programs for teaching them about personal finance.

Then again, teens are still learning about personal finance even if it's not in a classroom, according to Joe Sicchitano, senior vice president and head of financial planning for SunTrust Private Wealth Management, a part of Atlanta-based SunTrust Banks. "They're keen observers," Sicchitano said. "They watch and judge and get wisdom from that. Very few teens are taught proactively, but don't think they're not getting a lesson."

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While teens may learn about finance from watching parents, observation doesn't necessarily teach everything well. Teens who've witnessed parents cope with the recent economic downturn may be sensitized to financial factors without understanding them very well. "They know they should have a good credit score," Sicchitano said. "But if you ask them what a credit score is, they can't tell you."

Even finance majors like McKenna may be thrust into the world without much grounding in personal finance. All the courses required for her degree dealt with business finance, she said. As an elective, she took a single personal finance course.

"I was pretty shocked at how much more I learned in the personal finance course than in the courses that were directed toward working for large companies," McKenna said. Along with course material on budgeting and personal investing, she learned about student loans, which may come in handy if she goes on to graduate school, she said.

Whether they're in graduate school, medical school or just studying in the school of hard knocks, it seems clear that today's teens are more likely than yesterday's to be living a home for several more years. Yet Arnett said that's not necessarily by choice.

When young adults he surveyed were asked whether they'd rather live independently but on a tight budget, 74% said they did. "They really would prefer to live on their own, even if it means not being able to live as well," he said.

Not being able to live as well on their own is par for the course for young people, Arnett notes. Whether we are in recession or not, the unemployment rate for 15- to 24-year-olds is consistently twice as high as overall unemployment.

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"When times were good and unemployment was 5%, it was 10% for them," Arnett said. "In the depths of the recession, when unemployment was 10%, it was 20% for them. So it's always tough."

Despite that, today's teens remain optimistic. That includes Horan, who is just completing his freshman year at the University of Georgia, and beginning a long course of preparation for what he anticipates will a career with financial rewards exceeding those he grew up with. "I do believe," he said, "I'll be either as prosperous or more prosperous than my parents."

--Written by Mark Henricks for MainStreet

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