Personal Finance Lessons for Teens

Personal Finance Lessons for Teens

Only four states (Virginia, Tennessee, Missouri, and Utah) require high school students to complete a stand-alone course in personal finances to graduate high school, but every teen should enter adulthood with basic financial literacy. Sadly, few teens understand basic financial terms or are saving for long term goals, like college. And less than one-third of teens know how credit card interest works, according to a survey reported in Huffington Post.

A 2009 study by the National Bureau of Economic Research (NBER) found that only 27% of young adults understood basic financial concepts like inflation and interest rate calculations. Basic personal finance concepts are critical to thriving independently as adults, and these concepts should be taught when kids are young, so positive habits have time to develop before they leave the nest. Here are some of the most important personal finance concepts for teens.

Saving Should Become Second Nature

Ideally, children should learn to set aside some of their money as savings from the time they start receiving an allowance in the elementary school years. Teens should be encouraged to set aside a consistent portion of all money they receive, including money from part-time jobs, allowances, and special occasion money like that for birthdays and Bar Mitzvahs. Teens should learn to skim this money right off the top and put it into a savings account. This ingrains saving as a habit.

Learn the Value of Budgeting and Delayed Gratification

Teens and delayed gratification may seem to go together like oil and water, yet young people are perfectly capable of learning basic budgeting. Creating a budget isn't just for adults with mortgages and bills, but for anyone who wants to learn to manage money better. Fortunately there are some terrific online tools and apps that make setting up and keeping track of a budget flexible and simple. Your teen can carry around his bank balances and savings goals right on his phone, and can even set up automatic alerts for situations like a bank balance dropping below a certain threshold.

Start now: Sign up for Mint and check out our free, easy personal finance tools that can work for you and your teen.

How Bank Accounts Work

Teens may think of bank accounts as little more than remote piggy banks that occasionally chip in a little interest money. Your teen should learn that bank accounts are the key to being able to afford bigger ticket items later and cope with financial emergencies like replacing a pair of basketball shoes left behind after an away game. A bank account can also be a route to a secured credit card once a large enough balance can be maintained.

How Credit Cards Work

Even if a teen doesn't obtain a credit card until after college, knowing how they work can help keep temptation in check once that day arrives. Teens should understand how much credit cards charge in interest and how interest can make the true price of an item go up drastically. The basics of credit card rewards programs, and how they are only beneficial to those who don't carry a balance are other lessons teens can learn before they sign up for their first credit card.

The Importance of Credit Scores

Teens are used to being graded. From report cards to SATs, teens are well aware of how numbers are used to represent accomplishments and responsibility. The concept of the credit score is not lost on the average teen, and though most can't do much about their credit score during high school, they can lay the foundation for building one in adulthood. By learning the concepts listed above and putting them into practice, teens will be much better prepared when they begin building their own credit history.

People with low financial literacy are more likely to have problems with debt, are less likely to invest, and are less likely to plan for retirement. Young adults are hungry for understanding of personal finance topics, with 84% of college students saying they needed more education on financial management. Sixty-four percent of college students say they would like to have received this information while still in high school, according to the NBER study.

If you're the parent of a teenager, your child probably isn't receiving personal finance instruction in school. Whether or not she is, it's important that you emphasize the value of developing good personal finance habits at a young age and do your best to set a good example. A great place to start is by signing up for the online personal finance tools at Mint and showing your teen how they work.

Try it now: Sign up for Mint and start using our easy personal finance tools that can help you and your teen.