A survey conducted on Teens & Personal Finance in February 2022 highlighted that 54 percent of teenagers didn’t feel ready to handle financial matters as adults, 69 percent found the steep costs of higher education affecting their decision to attend college, and 41 percent lacked the benefit of financial literacy education at school. These statistics lead to a valuable inquiry – what can the younger generation learn today, that would significantly influence their financial future?
Managing finances is an extensive domain, and expecting teenagers to grasp every intricate element might be overwhelming. However, grounding them in some basic principles can do wonders. Here are ten noteworthy topics to start discussions on.
BUDGETING
Familiarize your teenager with the concept of budgeting. Irrespective of their financial inflow, instilling the value of managing money wisely can go a long way. Demonstrating how to track income and expenses, and emphasizing the significance of living within one’s means are vital aspects of it.
Encourage them to separate their funds into distinct categories, like savings and expenditure. This can allow them to visualize their financial flow, thereby underscoring the importance of budget management, especially with a financial goal in mind.
SAVINGS
Promote the practice of saving money. Illustrate the idea of “paying themselves first” by reserving part of their income for savings, even before they start spending it. Opening a savings account is an excellent springboard for this.
COMPREHENSIVE EMERGENCY FUNDS
Provide insight into the benefits of maintaining a robust emergency fund to cover unexpected costs arisen from medical emergencies, job loss, or income reduction. They can even start with as minimum as $1,000, striving progressively to save three to six months worth of expenses.
INVESTMENT
Introduce the rudimentary concepts of investment. Discuss diverse investment avenues, such as stocks, bonds, and mutual funds, and elaborate on the benefits of compound interest and long-term financial growth.
DEBT MANAGEMENT
Explain the risks and responsibilities of borrowing money. Educate them on the usage of credit cards, interest accumulation, and timely bill payments necessitated to evade debt formation.
CREDIT SCORES
Guide your teenager about credit scores. Give them insights on how it influences diverse situations like renting/buying a house, buying a car, etc., and help them realize the importance of starting to assemble a positive credit score as early as possible.
NECESSITIES VS DESIRES
Enable your teenagers to differentiate between essentials and luxuries. Encourage them to prioritize needs over wants. Owing to peer influence, it’s common for teenagers to sometimes blur the lines between needs and desires, making this conversation crucial.
FINANCIAL GOAL-SETTING
Help teens set attainable and measurable financial goals. Whether it’s saving for a car, college, or a trip, having an end product can be highly motivating.
WORK AND EARNING
Imbibing a strong work ethic early on is imperative for both personal growth and financial education. Instill in them the importance of hard work, and the logical correlation between effort and income.
TAX UNDERSTANDING
Provide a fundamental understanding of income and sales taxes. Inform them about deductions including Social Security and Medicare and help them realize the importance of filing taxes.
We’d love to hear your experiences about teaching financial life lessons to teenagers!
