A Teens & Personal Finance Survey conducted in February 2022 revealed that over half (54%) of the participating teenagers felt unprepared for the financial realities of adulthood. It further states that an alarming 69% of the respondents are letting the escalating costs of higher education influence their decision to opt for a college education.
According to the survey, a sizable 41% of teenagers indicated that their schools do not offer any form of financial education. This begs the question as to what financial knowledge young people should equip themselves with now, which will prepare them better for their future lives.
When discussing financial subjects with your teenager, it is vital to keep them engaged rather than overwhelming them with too much information all at once. Hence, it would be useful to initiate discussions on some fundamental financial lessons. Here are ten topics that can stir up meaningful conversations.
BUDGETING
Teaching them budgeting, even if they have minimal expenses, can encourage them to handle their money responsibly. You can show them the ways to track income and expenses while highlighting the necessity to live within one’s means.
Adopting practices like categorizing their money into savings, and expenditure can help them understand the significance of such actions, particularly when they aim at reaching financial goals.
SAVING
Promoting the culture of saving money is crucial. They should grasp the concept of setting aside a portion of their income for savings prior to any spending. Commencing with opening a savings account can arouse interest in saving, especially when they save with a specific goal in mind.
EMERGENCY FUND
Advise your teenager to establish an emergency fund, which would serve as a financial safety net during times of crises like sudden job loss, medical emergencies, or income drops. They can start the fund with a modest amount like $1,000 and aim to accumulate three to six months’ worth of expenses in a high-yield savings account for financial security.
INVESTING
Introduce them to the basic principles of investing. Talk about various investment avenues like stocks, bonds, and mutual funds. Teach them the potential of compound interest and long-term financial growth through investing. Encourage them to educate themselves about investing basics via books, courses or webinars.
DEBT MANAGEMENT
Educate them about the duties and risks involved while borrowing money. Talk about things like credit cards, interest rates, the importance of timely bill payments to prevent debt pileup.
Emphasize the potential outcomes of getting into debt and managing it, especially with the use of credit cards.
CREDIT SCORE
Inform your teenager early that credit scores are pivotal for various activities in life, including renting an apartment, buying a car or a house, and explain the steps to build a good credit score. Ensure that they understand what a credit score is, how to check it, and differentiate a good score from a poor one.
NEEDS VS. WANTS
Teach them the difference between essential needs (like food, shelter, clothes) and luxuries or non-essentials. Help them to give priority to needs over wants, to ensure effective financial decision making.
FINANCIAL GOAL SETTING
Encourage them to set financial goals, whether short or long term, which can provide purpose and motivation to start saving and planning their finances.
WORK AND EARNING
Imparting knowledge about working and earning is key to their financial literacy and overall development. Stress on the significance of hard work and the connection between their effort and income. Encourage a strong sense of work ethic and financial responsibility.
UNDERSTANDING TAXES
Help them grasp basic financial life lessons, including the significance of taxes like income tax, sales tax etc., and their impact on personal finances. Start by explaining what taxes are, their purposes, and the importance of filing taxes.
What financial lessons have you taught your teenager? Courtesy – SmartAsset.com.
