The Teens & Personal Finance Survey conducted in February 2022 revealed that 54% of the teenage respondents felt ill-prepared for the financial realities of adulthood. The escalating costs of tertiary education have influenced 69% of them in their decision to pursue college. Furthermore, the study found that 41% of teenagers do not receive financial literacy instruction in school. Hence, it’s worth questioning what youth can learn now to better their financial future.
Several financial topics are worth discussing with teenagers, but overloading them with too much information may bore them out. Here, we present ten fundamental financial lessons to initiate a productive conversation.
BUDGETING
Even if your teen has few expenses, nurturing budgeting habits can help them use their income wisely. Teach them to track income and expenditures, underlining the necessity of living within one’s means. Allocating money into various sections, such as savings and spending, will help teens visualize their financial situation, especially in pursuit of a financial goal.
SAVINGS
Foster a habit of saving money in your teen. Emphasize the concept of paying oneself first by setting a portion of their earnings into savings before spending. Opening a savings account can kickstart their savings journey, and witnessing the growth of their deposited money can be thrilling, particularly when specific goals are in sight.
EMERGENCY FUND
Educate your teen on the importance of an emergency fund that could be a lifesaver during critical situations like medical emergencies or unexpected income loss. Aim to accumulate three to six months’ worth of expenses in an emergency fund, providing fiscal security and peace of mind.
INVESTMENT
Introduce your teen to fundamental investment knowledge about stocks, bonds, and mutual funds. Explain compound interest and the potential for long-term financial growth. Encourage learning through books, classes, or webinars, ensuring you grasp the rudiments of the stock market and investing.
DEBT MANAGEMENT
Discuss the responsibilities and hazards linked with borrowing money. Illustrate the implications of credit cards, interest rates, and the significance of timely bill payments to evade escalating debt. Debt management is a common issue, often resulting from credit card use, hence an early start in understanding its repercussions is beneficial.
CREDIT SCORE
Credit scores develop early, hence teaching teens about their impact on critical life events like renting an apartment or buying a house or car is crucial. Open dialogue about credit scores, checking methods, and the difference between “good” and “bad” scores can be valuable.
NEEDS VS. WANTS
Help your teenagers to differentiate between needs (basic necessities like food, shelter, and clothing) and wants (non-essential luxuries). Guide them to prioritize needs. Teens often find it challenging to distinguish between wants and needs due to peer influence, hence a frank conversation on this topic can be enlightening.
FINANCIAL GOAL SETTING
Setting attainable and measurable financial goals can motivate teens, be it for a car, college, or vacation. It serves as the ignition required to embark on their financial journey.
WORK AND EARNING
Imparting financial education to teenagers is incomplete without teaching them about work and earning. Encourage a strong work ethic and fiscal responsibility from an early age. Highlight the correlation between effort and income, discussing different job opportunities.
UNDERSTANDING TAXES
Equip your teenagers with a basic understanding of taxes, how they affect their income, and the role of deductions like Social Security and Medicare from their paycheck. Explain the purpose of taxes – to finance public services such as education, healthcare, infrastructure, etc., and the importance of tax filing.
