According to a survey conducted on Teens and Personal Finance in February 2022, it was found that over half (54 percent) of teenage participants admitted to feeling inadequately prepared for the financial challenges of adulthood. Furthermore, a noteworthy 69 percent divulged that the escalating costs of tertiary education had significantly influenced their decision of whether to pursue further studies.
The study revealed that over 41 percent of teens were not receiving any form of financial education in their schooling years. Thus, it is timely to question what financial knowledge young adults can imbibe now to positively contribute to their future financial stability.
Discussing money management with your teenager may seem daunting, especially trying to engage them in multiple topics. However, there are crucial lessons you can impart. Here are ten conversation starters:
BUDGETING
Initiate the practice of budgeting even if your teen’s expenses are bare minimal. By demonstrating how to monitor income and outgoings, you’ll underline the essence of living within one’s means. Physically dividing their funds into categories such as savings and spends will aid in visualizing their financial health, particularly when they have a specific goal in sight.
SAVING
Promote the practice of money-saving and elucidate the notion of ‘paying oneself first’. This involves earmarking a portion of their income towards savings prior to any other expenditure. Opening a savings account can be an exciting start, especially when they witness their balance grow gradually.
EMERGENCY FUND
Inform your teenager about the significance of an emergency fund, a safety net for unforeseen situations such as health emergencies or job loss. Starting with as little as $1,000, the goal should be to accumulate three to six months’ worth of expenses in a high-yield savings account. This will provide financial stability and peace of mind.
INVESTING
Introduce basic investing concepts. Discuss diverse investment options like stocks, bonds, and mutual funds, along with the principle of compound interest and long-term financial growth. Encourage self-study through books, classes, or webinars.
DEBT MANAGEMENT
Explain the implications and obligations of taking on debt. Help them comprehend credit cards, interest rates, and the vitalness of timely bill payments to avert accruing more debt. Discuss the potential repercussions of credit card usage, both positive and negative.
CREDIT SCORE
Brief them about credit scores and their implication on various aspects of their life, such as housing, car loans, or renting. The sooner they grasp this concept, the better equipped they will be to build a robust credit score.
NEEDS VS. WANTS
Teach your teen to differentiate between needs (fundamental expenses like food and shelter) and wants (luxuries and non-essential items). Encourage responsible spending behavior by emphasizing the importance of prioritizing needs above wants.
FINANCIAL GOAL SETTING
Financial goal setting will stimulate productivity and motivation to save. Whether it’s a short-term or long-term goal like saving for a car, college fees, or a trip, setting clear, achievable targets is a powerful motivational tool.
WORK AND EARNING
Impress upon your teenager the importance of hard work and the correlation between effort and income. Inculcating a strong work ethic and fiscal responsibility early on is key to shaping a financially literate adult.
UNDERSTANDING TAXES
Lay the groundwork in comprehending financial lessons, particularly about income and sales taxes. Start with the basics and gradually elaborate on how taxes are obligatory contributions towards public amenities like education, healthcare, infrastructure, and others. Discuss the importance of tax filing and its impact on overall income.
So, what monetary knowledge and skills have you shared with your teens? Find more at SmartAsset.com.
