A Teens & Personal Finance Survey conducted in February 2022 found that 54 percent of teenage participants admitted feeling unprepared to handle their future financial obligations. Additionally, 69 percent expressed that escalating costs of higher education had influenced their decision on whether to go to college or not.
The evidence also indicated that 41 percent of teen respondents aren’t receiving any financial education in school. This raises the question of what significant lessons young adults can learn right now that will positively impact their financial futures.
We’ve identified several financial topics for discussion with your teens. However, maintaining their interest will depend on avoiding overwhelming them with an abundance of diverse subjects. Thus, some essential financial lessons your teen should learn are listed below.
BUDGETING
Introduce your teen to the habit of budgeting, regardless of their current outgoings. Guide them on how to record income and expenses, emphasizing the significance of living within their financial boundaries. By allocating money to different categories like saving and spending, teens can get a clearer understanding of why budgeting is crucial, especially when setting financial goals.
SAVING
Encourage a regular saving habit. Explain the idea of setting aside a portion of their earnings in a savings account before making any expenditures. The thrill of watching their savings grow can become fun, particularly if they have a financial objective set.
EMERGENCY FUND
Impart the importance of having an emergency fund to your teen. Such a fund could be a lifesaver when faced with unexpected events like an illness, job loss, or reduced income. This reserve can offer financial security and peace.
INVESTING
Expose them to basic investment knowledge such as stocks, bonds, and mutual funds. Show them the advantage of compound interest and long-term financial expansion. Although it’s a good idea to urge them to learn more through reading, classes, or webinars, ensure they first grasp investing and stock market fundamentals.
DEBT MANAGEMENT
Inform them about the risks and obligations associated with borrowing money. Explain credit cards, interest rates, and the importance of timely bill payment to avoid debt. It’s critical to start these discussions early as debt management is a reality that most people face.
CREDIT SCORE
Explain the nature and implications of a credit score and its impact on various life affairs like housing rentals, house acquisition, and car purchase. Establishing a friendly conversation on your own credit score, its checks, and good and bad scores can help your teen grasp the concept effectively.
NEEDS VS. WANTS
Help your teenagers differentiate between needs (basic necessities such as food, clothing, and shelter) and wants (luxury and non-essential items). Encourage them to prioritize needs above wants and to resist peer pressure when it comes to their spending decisions.
FINANCIAL GOAL SETTING
Encourage your teen to set financial goals that are achievable, whether short term or long term. It helps them stay motivated and focused on their financial journey.
WORK AND EARNING
Work and earning practicalities should form a valuable part of the teen’s financial education and personal growth. Foster a strong work ethic in them and educate them about the connection between effort and earning.
UNDERSTANDING TAXES
Equip your teen with a basic understanding of taxes, both income and sales taxes, and their impact. Break down how these deductions, including social security and Medicare, affect their income. Make sure they are aware of why taxes are essential, funding services like education, healthcare, and infrastructure, and the importance of tax filing on overall earnings.
