A survey on Teens and Personal Finance from February 2022 found that over half of the teenagers (54 percent) feel unprepared for adult financial responsibilities. Additionally, 69 percent mentioned that the rising cost of college has greatly impacted their decisions about further education. The study also highlighted that more than 41 percent of teens aren’t getting any financial education in school, raising the question of what financial knowledge young adults should learn now to ensure their future stability.
Talking to your teenager about money might feel overwhelming, especially when covering many topics. However, there are important lessons they can learn. Here are ten conversation starters:
**Budgeting**
Even if your teen doesn’t have many expenses, start teaching them about budgeting. Show them how to track income and expenses, stressing the importance of living within their means. Help them divide their money into categories like savings and spending, which can make their financial health more visible, especially when they have goals.
**Saving**
Encourage the habit of saving money and explain the idea of ‘paying oneself first.’ This means setting aside a portion of income for savings before spending on anything else. Opening a savings account can be exciting, especially as they see their balance grow over time.
**Emergency Fund**
Discuss the importance of building an emergency fund for unexpected situations like health issues or job loss. Starting with $1,000 and aiming to save three to six months’ worth of expenses in a high-yield savings account can provide financial security and peace of mind.
**Investing**
Introduce basic investing concepts such as stocks, bonds, and mutual funds, and explain compound interest and long-term growth. Encourage them to learn more through books, classes, or webinars.
**Debt Management**
Talk about the responsibilities and consequences of taking on debt. Explain how credit cards and interest rates work, stressing the importance of paying bills on time to avoid accumulating debt. Discuss both the positive and negative aspects of credit card usage.
**Credit Score**
Explain what a credit score is and how it affects many parts of life, like getting a car loan or renting a place. The earlier they understand this, the better prepared they’ll be to build a good credit score.
**Needs vs. Wants**
Teach them to distinguish between needs (essential expenses like food and housing) and wants (luxuries and non-essentials). Encourage responsible spending by prioritizing needs over wants.
**Financial Goal Setting**
Setting financial goals can boost their motivation to save. Whether they’re aiming for a short-term goal like saving for a car or a long-term one like college fees or a trip, having clear, achievable targets can be very motivating.
**Work and Earning**
Explain the connection between hard work and income. Instilling a strong work ethic and fiscal responsibility early on is crucial for helping them become financially literate adults.
**Understanding Taxes**
Start with the basics of income and sales taxes, and gradually explain how taxes fund public services like education, healthcare, and infrastructure. Discuss the importance of filing taxes and how it affects their overall income.
So, what financial lessons have you shared with your teens?