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Businesses Take Note: Teens Have Money to Burn

Teens have money to burn Credit: Burning money image via Shutterstock

If you sell to teenagers, there's news this spring that should put some new life in your balance sheet. As the economy recovers from the Great Recession, teen discretionary spending is on the rise again, with teens saying they plan double-digit spending increases in categories such as fashion, beauty and personal care, restaurants, and digital media, a new survey shows.

Teens cited improvements in both current fashion spending and intention to spend across income levels and gender, according to the 23rd semiannual survey of teen spending patterns, fashion trends, and brand and media preferences sponsored by Piper Jaffray, an investment bank and asset management firm. The survey gathered input from approximately 5,600 teens in geographically diverse high schools in 34 states.

The fashion category accounted for 39 percent of teen budgets, up from 38 percent in fall 2011 and 37 percent a year ago. Upper-income teens indicated that spending on fashion increased 17 percent since the previous survey and 21 percent year over year. Average-income teens indicated their spending on fashion increased 18 percent in the last six months and 15 percent year over year. These double-digit increases in fashion spending represent the first recorded since the 2003 and 2004 surveys, when teens across income levels indicated a similar tendency to spend on fashion. [Read related article: Companies Founded by Amazing Young Entrepreneurs]

Upper-income teen beauty spending increased 8 percent since the last survey and 6 percent year over year. Beauty spending by average-income teens increased 21 percent in the last six months and 18 percent year over year. Skin care and cosmetics represented a larger share of overall beauty spending, and the beauty spending gap between upper- and average-income teens continues to narrow, the survey found.

"Teens are demanding greater diversity of cosmetics offerings, evidenced by a notable reduction in brand preference concentration," the survey authors wrote. "This trend supports our view that young and emerging cosmetics brands, many of which are coming to the market with new or superior innovations, are gaining traction with teen consumers."

Teen spending on food and restaurants is at or near the highest level since early 2000, the survey found. Upper-income and average-income survey respondents increased their weekly restaurant spending by approximately 10 percent and 3 percent, respectively, compared with fall 2011. Taste remained the strongest influence on food and restaurant decisions. Value also continued to be an important influence on dining decisions and has gained in importance over time, ranking No. 2 in the current survey compared with No. 5 in spring 2007.

Teen spending on portable devices continues to accelerate, with 86 percent of teens reporting that they are likely to purchase a smartphone for their next device, up from 83 percent last fall. Apple's iOS gained market share as the most desired operating system, with 51 percent of teens saying they are likely to buy an iOS device (compared with 22 percent for Android).

"Furthermore, 19 percent of teens expected to purchase a tablet in the next six months, with 80 percent of those teens intending to purchase an iPad, which we believe should help Apple sustain its lead in the tablet space," Piper Jaffray said.

"Our spring 2012 survey results provide confirmation that we are in the early stages of a clearly defined discretionary spending cycle," said Jeff Klinefelter, director of research at Piper Jaffray. "Double-digit increases in spending on a sequential and year-over-year basis for both upper- and average-income teens and similar strength in spending intentions signal improved confidence in the overall environment and a willingness to spend more broadly on key categories of interest."