A Teens & Personal Finance Survey conducted in February 2022 found more than half (54%) of responding teenagers expressed feeling ill-equipped for handling personal finances as adults. Rising costs of higher education have influenced the college choices of an overwhelming majority (69%) of teenagers. Yet, over four in 10 (41%) stated that they receive no education on financial literacy at school. This raises the question, what could young adults learn now to aid their financial management in the future?
This data underlines the importance of starting a basic financial literacy conversation with your teenager before they dive into adult financial responsibilities. Trying to turn them into a financial expert might not be successful, as it could trigger disinterest. However, you can certainly introduce fundamental financial concepts to your teenager. Here are the top ten essential finance topics:
1. BUDGETING – Encourage your teenager to practice budgeting even if they have few expenditures. This habit will help them manage their income responsibly. Teach them to monitor earnings and expenses and drive home the importance of living within financial means.
2. SAVINGS – Teach the principle of ‘paying oneself first,’ i.e., setting aside a part of income for savings before any expenditure. Starting a savings account and tracking the account’s growth can be an exciting process, especially if it’s driven by a financial goal.
3. EMERGENCY FUND – Explain how an emergency fund can cover unexpected expenses such as medical emergencies or job loss. Target a fund that holds approximately three to six months’ worth of expenses.
4. INVESTING – Provide a simplified introduction to investment fundamentals, such as stocks, bonds, and mutual funds. Emphasize the effect of compound interest and long-term financial growth.
5. DEBT MANAGEMENT – Discuss the risks and responsibilities associated with borrowing money, covering topics like credit cards and repayments. Stress the importance of paying bills punctually to avoid snowballing debts.
6. CREDIT SCORE – Explain the concept of credit scores and their impact on future financial decisions like renting a house, buying a car, etc. Discuss steps to cultivate a healthy credit score.
7. NEEDS VS. WANTS – Guide teenagers to differentiate between their essential requirements and luxury items. Encourage them to prioritize needs over wants.
8. FINANCIAL GOAL SETTING – Encourage setting concrete and achievable financial goals, whether short-term or long-term, as this can motivate teenagers to commence their financial journey.
9. WORK AND EARNING – Use real-world examples to demonstrate the connection between effort and income, fostering a strong work ethic and financial responsibility.
10. UNDERSTANDING TAXES – Teach teenagers how mandatory payments, like income and sales taxes, influence their overall earnings. Discuss why public services like education, healthcare, and infrastructure depend on these contributions.
By starting an interactive dialogue, promoting a healthy understanding of finance, and teaching them these fundamental lessons, parents can help their teenagers navigate the tricky waters of personal finance.
