In a recent survey conducted in February 2022 about Teens and their understanding of Personal Finance, it was observed that over half (54%) the teenagers who participated felt ill-equipped to handle financial responsibilities as they transition to adulthood. A significant 69% attributed their decisions in consideration of higher education to the escalating costs involved.
Moreover, the survey revealed that a crucial 41% of teenagers aren’t receiving any form of financial literacy education in school. This necessitates introspection into what effective financial lessons young adults can currently learn that could have beneficial impacts on their future.
Many finance-related discussions could be initiated with your teen. However, making them an expert in every aspect may deter their interest. Hence, focus on teaching some fundamental lessons. Here are ten important topics to begin with:
1. BUDGETING
Even with limited expenses, it is essential for a teen to understand and practice budgeting. Show them how to monitor their income and expenditure, underscoring the significance of fiscal prudence. Present an easy picture of how segregation of money for savings and expenses enhances clarity about financial goals.
2. SAVINGS
Inculcate the practice of regular savings, where they prioritise setting aside a part of their income before spending. Opening a savings account could be an efficient starting point. The excitement of observing their finances grow will be enhanced if they have a clear objective.
3. EMERGENCY FUND
Guide your teen on generating an emergency fund, to ensure financial stability in case of any unexpected events such as medical emergencies or sudden unemployment. This fund will serve as a safety net and will offer peace of mind.
4. INVESTING
Introducing them to the basics of investing such as stocks, mutual funds, and bonds will broaden their financial scope. Give them insights into compound interest, long-term financial growth, and encourage self-education through reading materials, classes, or webinars.
5. DEBT MANAGEMENT
Inform them about the obligations and potential risks linked with borrowing money. Influence them to understand credit cards, interest rates, and the importance of timely bill payments.
6. CREDIT SCORE
Being proactive about a credit score is beneficial in the long run. Delivering insights about how a credit score impacts various aspects of life will be valuable. Encourage a dialogue on a “good” and “bad” credit score and the importance of each.
7. NEEDS VS. WANTS
Help them differentiate between necessities and luxuries. Foster an understanding that it is pivotal to prioritise essentials over non-essentials.
8. FINANCIAL GOAL SETTING
Encourage them to set financial goals related to saving for a car, college, or vacation. It fuels motivation and assists them in embarking on their financial journey.
9. WORK & EARNING
Lay emphasis on the value of hard work and earning money. Teach them about job opportunities, along with the relation between effort and income.
10. UNDERSTANDING TAXES
An elementary understanding of taxes, including income and sales taxes, and their influence on finances is significant. Explain the importance of filing taxes and provide clarity about deductions such as Social Security and Medicare.
So, what are some financial life lessons that you have taught your teens? Please share them on Smartasset.com.
