The results from a Teens & Personal Finance survey conducted in February 2022 reveal a worrying trend: over half (54%) of teens acknowledge being unprepared for the financial realities of adulthood. A notable 69% reported that soaring higher education costs influenced their decision to pursue college. Additionally, a significant 41% of teenage participants aren’t receiving any financial literacy training in school. Given these facts, it’s important to ask what financial skills young adults can acquire now that will have a lasting impact on their lives.
Discussing various finance-related themes with teenagers is crucial. However, inundating them with too much information may result in disinterest. The key is to focus on the essentials. Here are ten recommended topics to start the dialogue:
1. BUDGETING: Even if teens don’t have many expenses, learning to budget instills financial mindfulness. Guide them on how to monitor income and expenses and highlight the significance of living within their means. Allocating money into saving and spending categories contributes to their financial goals.
2. SAVINGS: Encourage your teen to start saving money. The strategy of ‘paying oneself first’ can be practiced by setting aside a portion of income for savings before making any expenditures. Opening a savings account is an excellent first step, and watching the balance increase can be motivating.
3. EMERGENCY FUND: Teach your teen about the importance of having an emergency fund to cover unexpected expenses, such as medical emergencies or job loss. Starting with as little as $1,000, the goal should be to save up to six months’ worth of expenses for enhanced financial security.
4. INVESTING: Give them a foundation in investing basics, explaining available options, such as stocks, bonds, and mutual funds. Enlighten them about the magic of compound interest and long-term financial growth, guiding them to relevant educational resources.
5. DEBT MANAGEMENT: Discuss the risks and responsibilities associated with borrowing money. The principles of managing credit cards, interest rates, and the significance of timely bill payments to avoid debt should be emphasized.
6. CREDIT SCORE: Provide insights about credit scores and their impact on various life aspects, such as renting an apartment, buying a home, or getting a car. It’s critical they learn to work on building a good credit score from an early age.
7. NEEDS VS. WANTS: Help your teens discern between essential expenses (needs) and non-essential luxuries (wants). Encourage prioritization of needs over wants to foster responsible spending habits.
8. FINANCIAL GOAL SETTING: Encourage setting realistic financial goals and work towards achieving them. This practice can spur motivation and kickstart their financial journey.
9. WORK AND EARNING: Instill the importance of a strong work ethic and financial responsibility early on. Guide them to understand the correlation between effort at work and income.
10. UNDERSTANDING TAXES: Make them aware of tax obligations, such as income taxes, sales taxes, and their impact on their finances. Start by explaining what taxes are and why they’re important for public services.
