According to a recent survey done in February 2022 titled “Teens & Personal Finance”, over half (54%) of the teen respondents confessed to feeling inadequately prepared for the financial challenges they anticipate encountering in their adulthood. The escalating costs of higher education was also reported by 69% to be a determinant in their choice of attending college. Furthermore, 41% of teenagers in the survey disclosed that they were not being taught financial literacy in their schools.
This data underscores the need to educate young ones about finance and its life-long implications. Although overwhelming them with financial topics could be counterproductive, few essential lessons can be imparted, laying a strong foundation for their financial future. Here are ten points that can help initiate such conversations:
1. BUDGETING
Educate your teenagers about the importance of budgeting, regardless of their current minimal expenses. Guide them in managing their income and expenses, and the need to live within their means. Dividing their available funds into categories like savings versus spending aids in visual understanding.
2. SAVINGS
Encourage them to save consistently, even if it’s a small amount. Explain the principle of ‘paying oneself’ first, starting with setting a portion of their earnings aside as savings before spending on other things. This habit can be further encouraged by helping them open a savings account.
3. EMERGENCY FUNDS
Impress upon them the necessity of creating an emergency fund to cushion unexpected financial challenges like medical emergencies or income loss.
4. INVESTING
Introduce them to the basic principles of investments including options like shares, bonds and mutual funds, the function of compound interest and the benefits of long-term financial growth.
5. DEBT MANAGEMENT
Teach them about the risks entailed in borrowing money, the effects of interest rates, and the importance of timely bill payments to avoid debt.
6. CREDIT SCORE
Make them aware of what credit score is and how it impacts their life in terms of renting, home or car purchase.
7. DISTINGUISHING NEEDS FROM WANTS
Help them discern between absolute necessities and luxury items, encouraging them to always prioritize essentials over luxuries.
8. FINANCIAL GOAL SETTING
Help them set financial goals to motivate their saving efforts. It could range from saving for short-term purchases or for long-term ambitions like college tuition.
9. THE PRINCIPLE OF EARNING
Highlight the importance of hard work and the direct correlation between effort and income. Encourage a robust work ethic and a sense of financial responsibility.
10. TAXES
Equip them with a fundamental understanding of taxes—the different types, their impact on personal finance, and the importance of timely filings.
These financial life lessons culminate into an invaluable education for your teens, for their immediate and distant future. Can you share the financial wisdom you imparted to your own teenagers? Please do share at SmartAsset.com.
