In a youth-focused survey on personal finance carried out in February 2022, over half (54 percent) of the participating teenagers expressed feeling ill-prepared for the financial challenges they anticipate facing as adults. A notable 69 percent stated their college choices were influenced by escalating education costs. Additionally, the study revealed, 41 percent of teenagers are not receiving any form of financial literacy education in their schools. This raises serious questions about what financial wisdom and practical skills adolescents can currently learn to benefit their future.
To engage your teenager in a discussion about finance, there are certain key elements you can consider. Avoid overwhelming them with intricate aspects; instead, focus on the basics to grasp their attention. Below are ten fundamental topics to set the conversation in motion:
BUDGETING
Even if your teen doesn’t have many financial responsibilities at present, nurturing a budgeting habit is invaluable to their fiscal future. Help them comprehend the importance of living within their means by tracking income and expenditure. This act of categorizing their funds between saving and spending will offer a clearer visualization and an understanding of budget management, particularly when targeting financial objectives.
SAVING
Foster their orientation towards saving. Teach them to prioritize their savings and put aside a section of their earnings before making any expenditures. Taking the first step by opening a savings account can help them observe their savings grow over time, especially if linked to a specific goal.
EMERGENCY FUND
Guide your teen in setting up an emergency fund to support unexpected financial exigencies such as medical emergencies or abrupt loss of income. Beginning with as less as $1,000 and gradually working towards accumulating three to six months’ worth of expenses in a high-interest savings account can promote financial stability.
INVESTING
Share the basic principles of investment with them. Explore various investment avenues like stocks, bonds, and mutual funds. Help them comprehend the concept of compound interest and long-term wealth creation. Encourage them to self-educate through books, classes or webinars.
DEBT MANAGEMENT
Introduce them to the implications and accountability involved in borrowing money. Discuss topics like credit card usage, interest rates, and the crucial aspect of timely bill payments to prevent debt piling up.
CREDIT SCORE
Educating your teen about credit scores, their importance in future aspects like house or car purchase, or renting apartments can prompt them to take the necessary steps in building a good score. Open discussions about your credit score, ways to monitor it, and the differences between a “good” and “bad” score are helpful.
NEEDS VS. WANTS
Help your teen differentiate between their needs – essentials including food, shelter, and clothing – and wants, which are luxury or non-essential items. Urge them to prioritize needs over wants to encourage prudent spending.
FINANCIAL GOAL SETTING
Setting financial targets can motivate teens to save, whether for short-term or long-term ambitions like purchasing a car, funding college education or planning a trip.
WORK AND EARNING
Imparting knowledge about work and earnings is integral to shaping your teenager’s financial education. Reinforce the significance of hard work and responsible money management. Discuss varied job opportunities and the correlation between effort and income.
UNDERSTANDING TAXES
Acquaint them with key financial life lessons, including the basics of income and sales taxes to help them grasp the impact on their finances. Start with a basic definition of taxes, aspects like mandatory payments to the government for funding public services like healthcare and education, the importance of tax filing, and their implications on overall earnings.
WHAT FINANCIAL LIFE LESSONS HAVE YOU IMPARTED TO YOUR TEENS?
