A Teens & Personal Finance Survey conducted in February 2022 revealed that over half (54%) of the surveyed teenagers felt they lacked readiness for financial management as adults. A significant 69% said the increasing costs of further education influenced their decision to go to college or not. The survey also indicated that up to 41% of the teenagers weren’t receiving any financial literacy education in school. Consequently, it begs the question—what can young adults learn today that will benefit their finances and their lives in the future?
Various finance-related topics can be discussed; however, inundating them with all aspects may lead to them losing interest. Some fundamental lessons, however, can be highly beneficial. Here are ten of these to start the conversation with your teen.
1. BUDGETING
Even though your teenager may not have many financial responsibilities, instilling budgeting habits will be beneficial. Teach them to closely watch their income and expenses, while emphasizing the significance of living within their means. Illustrating how to divide their money into different categories, like savings and expenditures can provide a useful visual aid and motivate them towards budgeting, especially when they have a financial target they aspire to meet.
2. SAVING
Promote the culture of saving money. Make them understand the idea of “paying themselves first” by reserving a part of their earnings for savings before spending on anything. Starting a savings account can be a great stepping stone. The act of depositing money, and seeing the account balance grow, can be encouraging for teens, particularly if they have a set purpose for the savings.
3. EMERGENCY FUND
Educate your teen about setting up an emergency fund; this can provide financial support during unforeseen circumstances like medical emergencies or income loss. An emergency fund can begin with $1,000 but should ideally contain three to six months of your typical expenses. This fund can offer financial assurance and peace of mind.
4. INVESTING
Introduce your teen to the basic concepts of investing. Discuss various investment vehicles such as stocks, bonds, and mutual funds. Highlight the impact of compound interest and long-term financial growth. Encourage them to educate themselves by reading relevant books or attending classes or webinars about investments.
5. DEBT MANAGEMENT
Highlight the potential risks and responsibilities of borrowing. Teach them about credit cards, interest rates, and the significance of timeliness in bill payments to prevent debt piling up. Emphasize that managing incurred debt is a harsh reality for many and show them the potential positive and negative outcomes of credit card usage.
6. CREDIT SCORE
Enlighten your teen about credit scores and how it can impact various aspects of their life such as securing housing or buying a car. Create open conversations around credit scores, ways to monitor it, and the implications of a good or bad score.
7. NEEDS VS. WANTS
Enable your teenagers to differentiate between needs (basic necessities such as food, accommodation, and clothing) and wants (luxuries and non-essential items). Urge them to prioritize needs over wants.
8. FINANCIAL GOAL SETTING
Establishing financial goals can motivate teens to strive for something tangible, whether imminent or long-term. Making these goals achievable and quantifiable can help hone their financial pathway.
9. WORK AND EARNING
Teaching a teen about the realities of work and earning is vital for personal development. Encourage a strong work ethic and teach them different job opportunities, demonstrating the connection between effort and income.
10. UNDERSTANDING TAXES
Provide them with a basic understanding of the effects of taxes on their finances, such as income taxes and sales taxes. Start with the fundamental concepts, discussing what taxes are, how taxes fund public services and why filing tax returns is important.
So, have you taught your teenagers any financial life principles?
