In a perfect world, every school district would require its students to take a course or two on personal finance prior to getting a diploma. While it’s true some schools offer classes on money management and other aspects of financial literacy, the vast majority do not. This leaves it up to parents and other adult role models to ensure adolescents have the knowledge and awareness necessary to successfully navigate the world of personal finance.
Here are some tips for those trying to teach teenagers about the fundamentals of personal finance:
Make it personal
It can be difficult to appreciate the importance of smart personal finance without being personally affected in some way. Parents may want to consider ways to tie-in financial wisdom with the things that matter most to their teenager. For example, moms and dads could tap into the awesome power of smartphones in the lives of teens. Let’s say you’re getting your 16-year-old son an iPhone XR for Christmas and know he’s earning $150 a week part-time. Explain how choosing to protect your iPhone XR by purchasing a $45 screen protector is a smart investment of one-third a week’s income, given the cost of replacing the phone. If your teen knows he’s on the hook if the phone breaks, he’s likely to make the smart choice with his own money.
Keeping track of the money coming in and going out is the foundation of a life of responsible personal finance. With this in mind, it’s important for adults to teach teenagers the importance of accounting. At the very least, teens ought to be explained how to use various easy to access accounting software and apps. The key is to emphasize the importance of accounting in making sure you avoid sudden pitfalls in personal finance. Augment this by breaking down the percentage of income recommended for going to various expenses, in order to help teens identify red flags in their spending habits once they reach full adulthood.
Mention your mistakes
Chances are you’ve made a financial mistake or two in your life, or possibly several of them. Use these as lessons to pass onto your children or other youth who look to you for guidance. Explain what you did wrong, what you learned, and how you’re doing things better. Events which occurred in your 20s are especially effective, as they often highlight financial mistakes which are common among younger people, such as taking on too much debt or using too much of your income to make monthly car payments.
Explain the economy
You don’t have to go into a lecture on the differences between Keynesian economics and the Chicago school of economic thought. Just make a point to let teenagers know they are about to enter an arena in which ruthless entities won’t think twice about seducing them into deep doubt and chronic financial stress. Don’t end on a negative note – touch on the opportunities which are available thanks to the free market – just make sure they understand the risk versus reward reality of the financial world.
Go about it together
In conclusion, we think personal finance is a great opportunity for parents and teens to bond with one another. It incorporates elements of adult responsibility, which is appealing to teens while imparting valuable wisdom, which parents are always wanting to achieve. While we’re still waiting for the education system to make personal finance coursework a cornerstone of acquiring academic credentials, parents can take the initiative themselves.