In a Teens & Personal Finance Survey done in February 2022, more than half (54 percent) of teenagers who responded to the report felt unprepared for financial life lessons they hope to have in adulthood. More than two-thirds (69 percent) said the rising costs of higher education have impacted their choice to attend college.
The study also showed more than four in 10 teenagers (41 percent) were not receiving any financial literacy education in school. With that in mind, it’s right to wonder what young adults can learn now that can impact their finances and their lives
There are several finance-related topics you can bring up with your teen, but if you try to make them an expert in each one, they will probably lose interest. That said, there are some fundamental lessons you can teach your teen. Below we have listed ten topics to help kickstart the conversation.
Even if your teen doesn’t have many expenses, getting them in the habit of budgeting will help them approach the money that they do have coming in with care. Show them how to track income and expenses, emphasizing the importance of living within their means.
The act of splitting up their money into different categories, such as saving and spending, can let them visualize it, and help them understand why it’s important to do, especially when they have a financial goal in mind.
Encourage the habit of saving money. Explain the concept of paying themselves first by setting aside a portion of their income for savings before spending on anything else. Opening a savings account can be a great way to start the process. The act of putting money in and watching the sum grow can be exciting for teens, especially if they have a goal behind it.
Teach your teen to create an emergency fund, which can assist in covering bills in the event of a medical emergency, job loss or loss in income. Emergency funds can start out with as little as $1,000, but you should strive to build up three to six months of your expenses in a high-yield savings account. This fund can provide financial security and peace of mind.
Introduce them to the basics of investing. Discuss different investment options like stocks, bonds, and mutual funds. Teach them about the power of compound interest and long-term financial growth. Encourage them to read books, take a class or sign up for a webinar, but make sure you understand the basics of the stock market and investing.
Explain the risks and responsibilities associated with borrowing money. Teach them about credit cards, interest rates, and the importance of paying bills on time to avoid debt accumulation.
Managing debt is a reality for many people and it can often result from using credit cards, which is why teaching teens about the outcomes (both good and bad) that can result from using one is an important lesson to start as soon as possible.
Credit scores start building sooner than you think. Teaching your teen what a credit score is and how it will affect several aspects of their life, such as renting an apartment, buying a house, or purchasing a car is an important way to ensure they can take the steps to help build it as soon as they can.
Creating an open dialogue about your own credit score, the ways you can check it, and what the difference is between a “good” and “bad” score are great conversations to have with your teen.
Needs vs. Wants
Teach your teenagers to distinguish between needs (essential expenses like food, shelter, and clothing) and wants (luxuries and non-essential items). Encourage them to prioritize needs over wants. Many teens may often get their wants and needs intertwined, especially when their peers can play a major role in their decision-making. It is important to have an honest conversation with them so that they can see that the items they already have don’t always need an expensive upgrade.
Financial Goal Setting
Setting financial goals allows teens to work toward something, whether it be something in the near or distant future such as saving for a car, college, or a vacation. Making goals attainable and measurable allows teens to focus on the end-product, which is sometimes the motivation that is needed to start their financial journey.
Work and Earning
Teaching a teenager about work and earning is an important part of their financial education and personal development. It’s crucial to instill a strong work ethic and financial responsibility from a young age.
Emphasize the importance of hard work and earning money. Teach them about the different job opportunities, and the connection between effort and income.
Give them a basic understanding of financial life lessons, including income taxes, sales taxes, and how they impact their finances. Explain income taxes and other deductions from their paycheck, such as Social Security and Medicare.
Start with the basics. Explain what taxes are: mandatory payments to the government to fund public services like education, healthcare, infrastructure, and more. Discuss the importance of filing taxes and how they impact overall earnings.