Results from a February 2022 Teens & Personal Finance survey highlight a troubling issue: over half of teens (54%) feel unprepared for adult financial responsibilities. Furthermore, 69% noted rising college costs influenced their decision on pursuing higher education, and 41% said they aren’t receiving financial literacy education in school. Given these statistics, it’s crucial to consider what financial skills young adults can learn now to benefit their futures.
Discussing financial matters with teenagers is essential but can be overwhelming if too much information is given at once. It’s best to focus on key topics. Here are ten important areas to cover:
1. **Budgeting:** Even if teens have limited expenses, learning to budget is vital. Teach them to track income and expenses, stressing the importance of living within their means. Encourage them to divide their money into savings and spending categories to help reach financial goals.
2. **Savings:** It’s crucial to inspire teens to start saving money. They can practice the method of ‘paying themselves first’ by saving a portion of their income before spending. Opening a savings account is a great start, and watching their savings grow can be very motivating.
3. **Emergency Fund:** Explain the need for an emergency fund to handle unexpected costs, like medical bills or job loss. Starting with $1,000 and aiming for six months’ worth of expenses can provide solid financial security.
4. **Investing:** Introduce basic investment concepts, including stocks, bonds, and mutual funds. Teach them about the power of compound interest and long-term growth, and direct them to useful educational resources.
5. **Debt Management:** Talk about the risks and responsibilities of borrowing money. Discuss how to manage credit cards, understand interest rates, and the importance of paying bills on time to avoid accumulating debt.
6. **Credit Score:** Explain how credit scores affect various parts of life, such as renting an apartment, buying a home, or getting a car. Teach them how to build and maintain a good credit score early.
7. **Needs vs. Wants:** Help teens understand the difference between essential needs and non-essential wants. Encourage them to prioritize needs over wants to develop responsible spending habits.
8. **Financial Goal Setting:** Motivate them to set realistic financial goals and work toward achieving them. This practice can inspire them and jumpstart their financial planning journey.
9. **Work and Earning:** Highlight the importance of a good work ethic and financial responsibility. Help them see the connection between hard work and earning money.
10. **Understanding Taxes:** Educate them about various tax obligations, such as income and sales taxes, and their significance. Start with the basics of what taxes are and why they’re necessary for funding public services.