In a survey conducted on Teenagers and Personal Finance in February 2022, over 50% (54% to be precise) of the teen respondents said they felt ill-equipped to handle future financial responsibilities as adults. Additionally, the escalating costs of higher education have influenced the college choices of nearly 70% (69% accurately) of the participants.
Moreover, the survey revealed that over four out of every ten teens (41% exactly) haven’t been taught financial literacy in schools. This raises critical questions about what financial knowledge these young adults should currently acquire that could benefit their personal finances and their lives generally.
Numerous finance-related issues can be introduced to them, but pressuring them to become proficient in all these areas may indeed cause them to lose interest. Notwithstanding, specific fundamental financial lessons can be imparted to them. Here are ten key talking points to assist you in initiating these crucial conversations.
1. BUDGETING: Regardless of their limited expenses, teaching teenagers to budget can positively mould their spending habits. Guide them through income and expense tracking, emphasising the significance of living within one’s means. Dividing their income into different categories like savings and spending can help them develop a visual understanding of their finances, especially when tied to a particular financial goal.
2. SAVINGS: Encourage them to develop a savings habit. Illustrate the idea of prioritizing saving a part of their income before indulging in any expenditure. Initiating a savings account can be an excellent introduction to this process. Seeing their money grow can be very motivating, particularly if there’s a target linked to it.
3. EMERGENCY FUNDS: Advise them to set up an emergency fund which can be a lifesaver during unforeseen times such as a medical crisis or loss of income. Begin with a modest amount, aiming eventually to amass an amount equivalent to three to six months of expenses in this high-interest saving account to attain financial stability and peace of mind.
4. INVESTING: Start discussing the basics of investment with them. Teach them about different investment avenues such as stocks, bonds, and mutual funds. Explain the compelling power of compound interest and its impact on long-term financial growth. Recommend appropriate learning materials or courses on investment, ensuring they grasp the very basics.
5. DEBT MANAGEMENT: Talk to them about the obligations and risks that come with borrowing money. Teach them about credit cards, interest rates, and the importance of timely bill payment to avoid debt pile-up. As managing debt is a reality for many, educating teens about potential consequences (good and bad) of using credit cards is essential.
6. CREDIT SCORE: Teenagers should be made aware that credit scores start building earlier than they think. Explain what a credit score is and how it can affect various areas of their life such as renting an apartment, purchasing a house or a car. Openly discuss your own credit score, how to check it, and the differences between a “good” and “bad” score.
7. NEEDS VS WANTS: Teach them to differentiate between needs (basic needs like food, shelter and clothing) and wants (luxuries and non-essential items). They should be guided in the process of prioritizing needs above wants. A candid conversation on their peer-influenced materialistic needs will go a long way in making them aware that not everything requires an expensive upgrade.
8. FINANCIAL GOAL SETTING: Developing financial goals can provide a purpose to teens’ financial planning. Whether the goals are immediate or long-term, such as saving for a car, education or a vacation, creating tangible and measurable objectives will provide them the guidance they need to embark on their financial journey.
9. WORK AND EARNING: Teaching teenagers about the correlation between work, earning and their financial development is highly important. Emphasize the significance of hard work, earning money and financial responsibility from a young age.
10. UNDERSTANDING TAXES: Provide them a basic understanding of financial life lessons, including dealing with taxes – income tax, sales tax and, how it impacts their earnings. Start with explaining what taxes are, their purpose in funding public services like education, health care, infrastructures and the importance of filing them.
So, what are some of the financial life lessons you have imparted to your teenager?
