In a recent survey about teenagers and personal finance, conducted in February 2022, it was revealed that 54% of the responding teens felt ill-equipped to deal with financial matters they expect to encounter as adults. Furthermore, the escalating expenses of tertiary education have influenced their decision to pursue college, as shared by 69% of the young respondents.
It was also revealed in the study that 41% of teens haven’t undergone any form of financial literacy education at school. Consequently, it’s essential to wonder what financial wisdom they could acquire now that would significantly affect their financial future.
Introducing various financial subjects to your teen is crucial, but the key is not to overload them with information as they might lose interest. Instead, focus on foundational principles they can implement immediately. Here are ten subjects to jumpstart your discussion:
1. BUDGETING: Start cultivating the practice of budgeting in your teen, even if their expenses are currently minimal. Illustrate how to monitor income and spending, emphasizing the necessity to live within their means. Demonstrating how to divide money into distinct spendings, such as savings, may help them understand its significance, particularly when a monetary target is in view.
2. SAVINGS: Promote the savings habit. Illustrate the principle of paying oneself first by reserving a part of their earnings for savings before indulging in other expenditures. A savings account could initiate this process. Watching their savings grow can be rewarding for teens, particularly when tied to a goal.
3. EMERGENCY FUND: Encourage your teen to establish an emergency fund. This helps cushion financial blows from sudden medical emergencies, job loss or income reduction. While an initial fund of $1,000 is a good start, aim to accumulate three to six months’ worth of expenses in a high-yield savings account as extra financial security.
4. INVESTING: Familiarize your teen with the basics of investing. Discuss diversified investment options such as stocks, bonds, and mutual funds. Enlighten them about compound interest and long-term financial growth.
5. DEBT MANAGEMENT: Propose the use of debt responsibly. Explain about credit cards, interest rates and highlight paying bills punctually to prevent debt pile-up.
6. CREDIT SCORE: Teach your teen about credit scores. Its impact on several life aspects from renting an apartment, buying a house or a vehicle should be made clear.
7. NEED VS. WANT: Help your teen discern between needs (essentials like food, shelter, clothing) and wants (luxuries). Influencing teens to prioritize needs rather than whimsical desires will prove fruitful.
8. FINANCIAL GOAL SETTING: Demonstrate how setting financial goals help strive for something concrete. Make the goals feasible and quantifiable, which aids in focusing on the end-product and motivating them to start their financial journey.
9. WORK AND EARNING: Instilling a work ethic and financial accountability from a young age is crucial. Teach them about different jobs and the resulting income, emphasizing the relation to financial stability.
10. UNDERSTANDING TAXES: Impress upon your teen the importance of having a basic knowledge of taxes – income tax, sales tax, and their impact on their earnings. Start with the rudiments of taxes, how they fund public services, and the necessity of filing taxes.
Do share some of your own experiences and wisdom about handling finances, shaping this discourse around finances as interactive, engaging, and richly instructive. – SmartAsset.com
