The Teens & Personal Finance Survey conducted in February 2022 revealed a significant data point: more than half (54%) of teenage respondents felt ill-equipped to manage financial realities of adult life. A majority of them (69%) admitted that escalating tuition fees have influenced their decision to pursue higher education. The survey further displayed that over two-fifths (41%) of the interviewed teenagers receive no formal financial education in school. These numbers trigger an important question, what financial knowledge can these young individuals acquire now that could shape their fiscal futures and overall life?
There are many finance-related subjects you may wish to discuss with your teenager. However, overwhelming them with information could cause disinterest. Certain core lessons can form the foundation of their financial literacy. Let’s dive into ten key topics you should talk about with your teen.
BUDGETING: Start by instilling a sense of budgeting, even if your teenager’s expenses are minimal. Teaching them to effectively manage the little money they have can encourage thoughtful spending. Show them how to monitor their income and expenditure, highlighting the importance of living within their means. Help them divide their money into various categories such as savings and spending, which can provide a visual cue to understand the essence of budgeting, especially when they have a specific financial objective in mind.
SAVING: Foster a saving culture. Explain the principle of ‘pay yourself first’ by reserving a part of their earnings for savings before any spending. Opening a savings account could be a convenient starting point. Watching the money grow can be stimulating for teenagers, especially when tied to a meaningful goal.
EMERGENCY FUND: Help your teenager to establish an emergency fund that can cover unexpected expenses like sudden medical needs or income loss. Such funds can start small, say $1,000, but the eventual aim should be to accumulate three to six months of expenses in a high-interest savings account, offering financial stability and peace of mind.
INVESTING: Bring them in the loop about investing basics. Discuss the world of stocks, bonds, and mutual funds. Highlight the magic of compound interest and benefits of long-term financial expansion. Encourage self-study through books, classes, or webinars, only after you have a fair grasp over the basics of the stock market yourself.
DEBT MANAGEMENT: Warn them about the potential dangers and responsibilities of debt. Teach them about credit cards, interest rates, and the need to pay bills timely to dodge debt accumulation.
CREDIT SCORE: Impress upon them that credit scores start shaping early. Inform them about its far-reaching impacts on key aspects like leasing an apartment or buying a home/car. Through open discussions about your own credit score, you can guide them towards nurturing a robust credit score from an early age.
NEEDS VS. WANTS: Encourage your teenagers to separate their needs from their desires, with a focus on prioritizing the former. Teenagers often muddle their needs and wants, swayed by their peers. An open talk on this topic can aid them in making informed financial decisions.
FINANCIAL GOAL SETTING: Encourage your teenager to set clear, achievable financial goals, which provide them a purpose to save or invest. This could play a crucial role in kickstarting their financial journey.
WORK AND EARNING: Stress upon the significance of work ethics and financial responsibility. Tighten the link between their efforts and earnings, helping them understand different work opportunities.
UNDERSTANDING TAXES: Lastly, simplify taxes and deductions for them. Make them understand that taxes are compulsory payments for the government to fund public services. Discuss the significance of tax filing and its impact on their total earnings.
What are some of the finance lessons you have taught your teens? Let us know at SmartAsset.com!
