A survey conducted in February 2022 focusing on Teens & Personal Finance revealed that over half (54 percent) of the respondent teenagers felt under-equipped to handle financial responsibilities expected in adulthood. Moreover, an overwhelming 69 percent of teenagers admitted that the escalating costs of tertiary education heavily influenced their decision to pursue college studies.
Interestingly, the survey also found that over 40 percent of teenagers (41 percent) hadn’t received any financial literacy education at their schools. This raises questions about what financial wisdom young folks can acquire now that could benefit their economic stability and life quality in general.
There’s a myriad of financial topics you can discuss with your teenager. However, overwhelming them with too much information may lead to disinterest. For this reason, it’s helpful to focus on imparting a few crucial lessons. For your convenience, we have compiled a list of ten essential topics to initiate this important conversation:
BUDGETING
Even if your teenager has limited expenditures, cultivating a habit of budgeting can guide them to handle their income responsibly. Demonstrate how to track income and expenses and stress the vital principle of living within their means. Allocating their income to various categories like savings and expenses helps them visualize their financial scenario and comprehend the significance of this process, particularly in pursuit of financial goals.
SAVING
Instill the habit of saving in your teen consistently. Discuss the principle of ‘paying oneself first,’ which involves setting aside a portion of their earnings towards savings before making any expenses. Starting a savings account can initiate this habit. The excitement of watching their savings grow can really motivate teenagers, especially when they are saving towards a specific goal.
EMERGENCY FUND
Educate your teenager about the need to establish an emergency fund. This can serve as a financial buffer during unexpected events such as a medical emergency, unemployment, or loss of income. An emergency fund can commence with a humble $1,000, and ideally, should grow to cover three to six months’ expenses stored in a high-yield savings account. This fund can provide financial stability and peace of mind.
INVESTING
Introduce your teenager to basic investment wisdom. Discuss various investment vehicles like stocks, bonds, and mutual funds. Talk about the magic of compound interest and long-term financial growth. Encourage them to expand their knowledge through books, classes, or webinars, but ensure that they grasp the fundamental principles of the stock market and investing.
DEBT MANAGEMENT
Highlight the risks and responsibilities attached to borrowing money. Discuss credit cards, interest rates, and the necessity of timely bill payments to avoid debt. Since many individuals grapple with managing debt—often accruing from credit card usage—it is crucial to teach teenagers about the positive and negative consequences of borrowing as early as possible.
CREDIT SCORE
Initiate a conversation about credit scores, which can impact many aspects of their life, including renting an apartment, buying a property, or purchasing a car. Teaching teenagers about credit scores can help them start building it early on. Discuss the concepts of a ‘good’ and ‘bad’ credit score, how you can check it, and engage in a dialogue about your own credit score.
NEEDS VS. WANTS
Help your teenager differentiate between needs and wants— essentials like food, shelter, and clothing versus luxuries and non-essential items. Encourage them to prioritize needs over wants. Teenagers often confuse needs with wants, and peer influence can significantly skew their judgment. Honest conversations about this topic can help them realize that upgrading every owned item with an expensive variant is unnecessary.
FINANCIAL GOAL SETTING
Setting financial goals allow teenagers to work towards concrete objectives, whether short-term or long-term, such as saving for a car, college fees, or a trip. Goals that are achievable and quantifiable can help teenagers stay focused and motivated to embark on their financial journey.
WORK AND EARNING
Imparting knowledge about work and income is an integral part of a teenager’s financial education and personal development. Emphasize the value of hard work and fiscal responsibility. Discuss the variety of job opportunities available and the relationship between effort and income.
UNDERSTANDING TAXES
Help your teenagers understand basic concepts of taxation, including income taxes, sales taxes, and how they affect personal finances. Discuss income taxes and other paycheck deductions, such as Social Security and Medicare. Start with the essentials—explain that taxes are mandatory contributions to the government funding public services like education, healthcare, infrastructure, etc. Discuss the importance of filing taxes and how they impact total earnings.
We would like to learn about any noteworthy financial wisdom that you’ve shared with your teenagers.
