A survey in February 2022 on Teens and Personal Finance showed that more than half (54%) of teenagers felt unprepared for adult financial challenges. Additionally, 69% said the rising costs of higher education affected their decision to pursue further studies.
The study also highlighted that over 41% of teens weren’t receiving any financial education in school. This brings up the need for young adults to learn financial literacy now to secure their future financial stability.
Talking to your teenager about managing money might feel overwhelming, especially with various topics to cover. Here are ten important lessons you can discuss:
**Budgeting**
Start by teaching your teen how to budget, even if their expenses are small. Showing them how to track income and expenditure stresses the importance of living within their means. You can help them divide their money into categories like savings and spending, which is particularly useful when they have a specific goal.
**Saving**
Encourage the habit of saving and explain the idea of “paying yourself first,” which means setting aside a portion of their income for savings before spending on anything else. Opening a savings account can be exciting as they watch their balance grow over time.
**Emergency Fund**
Talk to your teen about the importance of having an emergency fund for unexpected events like health issues or job loss. Starting with as little as $1,000, aim to build three to six months’ worth of expenses in a high-yield savings account to provide financial security.
**Investing**
Introduce basic investing ideas, including different options like stocks, bonds, and mutual funds. Explain concepts like compound interest and long-term growth. Encourage them to learn more through books, classes, or online webinars.
**Debt Management**
Discuss the responsibilities and consequences of taking on debt. Teach them about credit cards, interest rates, and the importance of paying bills on time to avoid accumulating more debt. Explain both the positive and negative aspects of credit card usage.
**Credit Score**
Explain credit scores and how they affect important aspects of life, such as obtaining a car loan or renting an apartment. Understanding this early helps them build a strong credit score.
**Needs vs. Wants**
Help your teen distinguish between needs (essential expenses like food and housing) and wants (non-essential items and luxuries). Encourage them to prioritize spending on needs over wants.
**Financial Goal Setting**
Setting financial goals can motivate your teen to save. Whether it’s for a short-term need like a new gadget or a long-term goal like a car or college fees, having clear and achievable targets can be a great motivator.
**Work and Earning**
Teach your teen the value of hard work and the relationship between effort and income. Instilling a strong work ethic and financial responsibility early on contributes to developing a financially savvy adult.
**Understanding Taxes**
Start with explaining the basics of income and sales taxes. Discuss how taxes fund public services like education, healthcare, and infrastructure, and the importance of filing taxes and understanding their impact on overall income.
So, what financial skills have you shared with your teens?