A survey on Teens & Personal Finance conducted in February 2022 revealed some interesting insights. Of those surveyed, 54% of teenagers felt ill-equipped to deal with financial responsibilities they will encounter as adults. A significant 69% stressed that the escalating cost of tertiary education has influenced their decision on attending college. It was also noted that a startling 41% of the teenage population has not been given any financial education in school. This data raises concern over what financial knowledge young adults can acquire now to positively shape their financial future.
There are several finance-related topics that could be of interest to your teenager, but trying to make them proficient in all can lead to disinterest. Instead, here are some essential lessons that could be beneficial to them. Here are ten subject areas that could stimulate meaningful discussion.
1. BUDGETING: Even with limited expenses, teaching your teen to budget helps them manage their finances more responsibly. Show them how to document income and expenses and underline the significance of living within their means. Demonstrating how to separate money into distinct categories like savings and expenditures can help them understand the financial planning process, particularly if they’re working towards a financial goal.
2. SAVING: Encourage the practice of saving money. Discuss the concept of setting aside a portion of their income for saving, even before other expenses. Introduce them to savings accounts as a possibility to start this process. Watching their money accumulate can be highly satisfying, especially if they have financial goals in play.
3. EMERGENCY FUND: Teach your teen the importance of building an emergency fund that will aid in unexpected bills due to medical emergencies, job layoffs or income loss. Encourage them to start with a minimal amount and eventually work up to three to six months’ worth of expenses in a high-yield savings account for financial security and peace of mind.
4. INVESTING: Explain the fundamental concepts of investing. Discuss options like stocks, bonds and mutual funds. Highlight the benefits of compound interest and long-term financial growth. Foster their learning through books, classes or webinars, ensuring they understand investing’s basic principles.
5. DEBT MANAGEMENT: Talk about the risks and responsibilities tied with borrowing money. Educate them about credit cards, interest rates and the necessity of timely bill payments to avoid accumulating debt.
6. CREDIT SCORE: Discuss that a credit score begins to establish earlier than they might think. Explain to them the many ways it can impact their lives such transportation, housing and employment. Discuss the significance of a good credit score and how they can positively affect it at a young age.
7. NEEDS VERSUS WANTS: Help your teen differentiate between necessities (like food, shelter, and clothing) and luxuries. Encourage them to always prioritize essentials over non-essentials.
8. FINANCIAL GOAL SETTING: Foster the practice of crafting financial goals. Whether short-term or long-term, having these goals motivates teenagers to save more and start their financial journey on a practical note.
9. WORK AND EARNING: Teaching your teenager about the different avenues of earning money is indispensable for their financial education. Highlight the relationship between effort invested and income gained.
10. UNDERSTANDING TAXES: Brief them about simple financial life responsibilities such as income and sales taxes. Start from the basics, letting them understand what taxes are, how the government uses tax income to offer public services and the effects of taxes on overall earnings.
As parents and guardians, what other financial lessons have you instilled in your teenagers?
