In a recent survey titled ‘Teens & Personal Finance’ conducted in February 2022, it was found that more than half (54 percent) of the teenage respondents feel ill-equipped for dealing with financial matters as adults. Furthermore, 69 percent of teenagers stated that the increasing cost of higher education has significantly influenced their decision to pursue further academic pathways.
In addition, over four out of ten teenagers (41 percent) have not been given any financial education at school. This raises an important question about what financial knowledge can be imparted to the young generation to make a positive impact on their future financial standing.
Several financial topics can be discussed with teenagers. However, bombarding them with too much information can be overwhelming and lead to disinterest. Therefore, addressing fundamental financial topics is key. Here are ten suggestions to initiate this crucial conversation:
1. Budgeting: Even if teenagers have limited expenses, establishing a habit of budgeting can help them handle their income wisely. Teach them how to track income and expenses, emphasizing the significance of living within their means.
2. Saving: Foster the habit of saving money in your teenager. Teach them the benefits of saving before spending by setting aside a piece of their income first. Opening a savings account could be a practical start.
3. Emergency Fund: Guide your teen on the importance of an emergency fund, which can cover unexpected costs like medical emergencies or job loss. A high-yield savings account containing an amount equivalent to 3 to 6 months worth of expenses can provide financial security.
4. Investing: Start by introducing the basics of investments like stocks, bonds, and mutual funds. Educate them about compound interest and the potential for long-term financial growth.
5. Debt Management: Explain the liabilities and risks linked with borrowing money. Describe how to use credit cards responsibly, and the importance of timely bill payments to avoid debt.
6. Credit Score: Teach your teenager about what a credit score entails and how it can impact key life situations like apartment rentals, home buying, or car purchases.
7. Needs vs. Wants: It’s essential for teenagers to differentiate between needs (basic necessities) and wants (luxuries). Motivate them to prioritize their needs before indulging in their wants.
8. Financial Goal Setting: Encourage your teenager to establish financial goals, whether it’s short-term or long-term. This can motivate them to start their financial journey.
9. Work and Earning: It’s vital to instill a strong work ethic and sense of financial responsibility in a young person’s mind. Teach them about the correlation between effort and rewards.
10. Understanding Taxes: Start by explaining basic financial life lessons including income taxes, sales taxes and their impact on finances.
What are some financial skills you have taught your teenager? Share it with us at Smartasset.com.
