The Teens & Personal Finance Survey in February 2022 revealed that 54% of teen respondents felt ill-prepared for managing finances as adults. Further, 69% stated that escalating higher education costs have influenced their college attendance decision. The study also revealed that surprisingly, 41% of teenagers are not receiving any form of financial literacy education in schools. This brings to question what pivotal lessons the youth can learn now that will significantly impact their financial future.
You can engage your teenager in various finance-related discussions, careful to not overwhelm them with too much information at once, which may lead to disinterest. To guide you in this, here are ten fundamental topics to begin the conversation:
BUDGETING
Start by introducing your teenager to the idea of budgeting, even if they don’t have many expenses. Teach them how to monitor income and expenses, emphasizing the significance of living within their means. Showing them how to separate their money into categories like saving and spending can give them a clear picture and underscores the importance of doing so when working towards a financial objective.
SAVING
Nurture a savings culture in your teen. Explain the benefits of setting aside a proportion of their income for savings before other expenditure. Opening a savings account might be an excellent initiative to commence this process, and watching their balance grow could offer an exciting experience, particularly if tied to a specific goal.
EMERGENCY FUND
Impart the importance of having an emergency fund, to cover unexpected bills resulting from medical emergencies, job loss, or a drop in income. Such funds should ideally hold enough to cover three to six months worth of expenses to provide financial stability and peace of mind.
INVESTING
Familiarize them with the fundamentals of investing, exploring options such as stocks, bonds, and mutual funds. Discuss compound interest and the potential for long-term financial growth. Encourage them to dig deeper by reading books, joining classes, or participating in webinars.
DEBT MANAGEMENT
Highlight the risks and responsibilities tied to borrowing money. Educate them on credit cards, interest rates, timely bill payment, and avoiding debt build-up. Begin this crucial lesson early, as managing debt can be a challenge for many adults, resulting largely from credit card usage.
CREDIT SCORE
Emphasize the importance of building a good credit score from an early age. Explain its impact on aspects of life such as securing a rental apartment, home purchase, or automobile purchase. Help them understand how to nurture good credit standing early on.
NEEDS VS. WANTS
Help them delineate between essential needs (like food, shelter, and clothing) and non-essential wants. Guide them to always prioritize needs over wants. This is even more important because teenagers’ decisions can often be influenced by their peers. Encourage them not to always go for the pricier option when what they currently have is sufficient.
FINANCIAL GOAL SETTING
Stress the importance of setting financial goals as this provides a target for teenagers whether it’s near term or long term, like saving for a car, college, or vacation. Setting realistic and measurable goals helps maintain focus and can motivate them to embark on their financial journey.
WORK AND EARNING
Imparting work ethics and financial responsibility to your teenager is crucial. Help them make the connection between exerted effort and earned income, by explaining different job opportunities and the importance of a strong work ethic.
UNDERSTANDING TAXES
Provide them a basic understanding of taxes; from income taxes to sales taxes, and how they affect personal finances. Start with simple explanations of what taxes are and their role in funding public services. Discuss the importance of filing taxes and their impact on overall earnings.
What financial lessons have you passed on to your teenagers?
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