A February 2022 survey on Teens & Personal Finance revealed that over half (54%) of the surveyed teenagers felt inadequately prepared for financial realities awaiting them in adulthood. A significant 69% claimed that the escalating costs of advanced education influenced their decision to attend college.
Further, the research indicated that over four out of ten teens (41%) were not receiving any financial education at school. Thus, it is pertinent to consider what financial knowledge adolescents can gain now that can materially influence their finances and lives in the future.
Numerous finance-related topics could be introduced to teenagers. However, overwhelming them with too much detail might lead to disinterest. There are essential financial lessons you could impart your teen. Below, we have highlighted ten key areas to start your discussion.
BUDGETING:
Even if your teen has little expenses, cultivating the habit of budgeting is beneficial. Guide them on the process of tracking income and expenses and underscore the importance of living within one’s means.
Advising them on how to efficiently divide their money into different buckets, such as savings and expenditure, enables them to visualize budgeting benefits, especially when having a financial goal.
SAVING:
Foster a savings habit in them. Explain how setting a fraction of their income aside as savings before spending on other things is essentially paying themselves first. Commencing a savings account offers a good starting point, and seeing their savings grow could thrill them, especially when tied to a defined goal.
EMERGENCY FUND:
Educate your teen on the benefits of having an emergency fund that could cover unexpected expenses arising from situations like health emergencies or sudden loss of income. They can start their emergency fund with as little as $1,000 and later aim to accumulate around three to six months’ worth of expenses.
INVESTING:
Introduce them to the fundamentals of investing. Discuss investment options like bonds, stocks, and mutual funds. Highlight the importance of compounding interest and growth in the long run. Encourage them to take a course, read books, or register for a webinar concerning investment basics.
DEBT MANAGEMENT:
Explain the risks and responsibilities that come with debt. Teach about credit cards, interest rates, and the importance of timely bill repayment to avoid debt build-up.
CREDIT SCORE:
Credit scores are started building sooner than you believe. Teach your teen the significance of a credit score and how it can affect multiple facets of their lives such as renting an apartment, buying a house, or purchasing a vehicle.
NEEDS VS. WANTS:
Help your teenagers differentiate between needs, like food, shelter, and clothing, and wants, that are luxuries. Encourage them to give precedence to needs over wants.
FINANCIAL GOAL SETTING:
Encourage your teen to set financial goals as it provides a sense of achievement. By making goals realistic and measurable, teenagers are more motivated to embark on their financial journey.
WORK AND EARNING:
Teaching a teenager about work and earning is crucial for their financial knowledge and personal growth. Teach them about different job opportunities and the relationship between effort and income.
UNDERSTANDING TAXES:
Offer them an initial understanding of financial life lessons, including taxes. Discuss income taxes, sales taxes, and other mandatory payments like Social Security and Medicare contributions and their impact on finances.
By starting with the basics, explaining what taxes are, and discussing how it impacts overall income, you offer your teen an essential financial life lesson.
Are there any financial lessons that you’ve taught your teenagers?
