Teenagers are in the early stages of earning their own paycheck, incurring debt, and making crucial choices about college and career choices – all milestones that provide invaluable lessons about personal finance. By understanding its fundamentals, teens can ensure a prosperous financial future.
One of the cornerstones of personal finance is learning to differentiate between needs and wants. It can be easy to fall into the cycle of living paycheck to paycheck and spending more than you earn; budgeting and setting savings goals are two effective tools that will help prevent this. Teaching teens how to live within their means will reduce future stress regarding money issues.
Along with understanding their needs and wants, teens need to understand the workings of credit. Credit card companies make money through interest charges on purchases made using their cards; this can quickly increase costs for items purchased with these cards. Therefore, teenagers must understand exactly how much interest is due before using one for purchases, and also understand that any rewards programs available only work when there is no balance left outstanding on said card.
An important part of personal finances for teenagers is building their credit. A good score will enable them to obtain mortgage and car loan approval in the future, and understanding how they can enhance it by paying bills on time and minimizing debt is an invaluable lesson in personal finance for teens.
Teenagers should be encouraged to find extra ways to earn income, such as side gigs, rental properties or investing in real estate. Doing this helps develop financial independence while creating an emergency fund; having multiple streams of income also makes it easier to avoid drawing down from savings when unexpected expenses arise.
Though discussing money during teenage years can seem uncomfortable, parents and teachers should initiate these discussions with their students to help prevent common traps such as student loans and debt from occurring. By discussing it directly, this can help teens avoid situations like loans and debt that arise out of neglect or oversight.
If you need help starting, there are plenty of resources available to you and your teen in learning personal finance for teenagers. One is the iTeach Personal Finance curriculum, which can teach goal setting, budgeting, earning money through compound interest and saving for retirement. Other useful tools include Beth Kobliner’s best-selling book I Will Teach You to Be Rich as well as the CBC program On Money.
Teenagers need to learn personal finance as soon as possible. By understanding budgeting, saving and credit basics early in high school they will have all of the tools needed for financial independence after graduation and entering the workforce fully prepared.