Building Financial Literacy in Teenagers
Unexpected expenses can quickly add up throughout the year, making financial literacy an essential skill for everyone. If managing money is challenging for adults with significant financial experience, imagine how crucial it is for teenagers who are just beginning to navigate personal finances. They will be responsible for handling school and consumer debt, savings, informed decision-making, mortgage vs. rent, retirement, family budgets, and more. Many people are concerned about the lack of financial education in schools and homes, but this is not inevitable. As a community, we can teach teenagers the financial skills for long-term success.
We did a fly-by of the basics above; as a minimum, they include budgeting, saving, investing, and understanding debt. One hindrance to financial preparation for teens may be that some parents, caregivers, and educators feel insecure or unequipped to teach financial skills. This may especially be true if they have experienced financial troubles themselves. However, financial literacy is worth fighting for and overcoming these obstacles because of the lifelong impact of these skills on adults’ financial habits. A terrific resource may be The Journal of Consumer Affairs, which focuses on consumer-related issues, including financial literacy and decision-making in teenagers. It demonstrated how teenagers with higher financial literacy make more informed choices and avoid financial mistakes later in life.
Strategies for Building Financial Literacy
Start with budgeting basics. Budgeting is creating a plan to track and manage income and expenses, ensuring that spending stays within limits and aligns with financial goals. For teens, budgeting is making a plan for how they spend and save their money. It helps them figure out how much they earn, how to spend part-time job money, allowance, or gifts on essential things, and how to save for stuff they want in the future. It’s like giving every dollar a job so they don’t run out of money or overspend. There are tons of resources to help teens (or all of us) create a simple budget, tracking income/expenses, and setting goals. The Journal of Financial Counseling and Planning often discusses the importance of budgeting for financial stability, highlighting that individuals who regularly budget are more likely to achieve their financial goals. This type of education is a gift to our students.
Teach the importance of saving. Saving is hard. Yet, it is a fundamental skill that encourages goal-setting. It teaches students to save for specific items or experiences – new sneakers, school trips, or a pre-owned car. It also begins to introduce the concept of emergency savings. We know emergencies will happen. We used to call this money for a rainy day; it helps students see that there are unexpected events which can be faced with reduced stress when we budget and save. The Journal of Consumer Affairs says, “Building financial literacy through education can help individuals improve their saving habits, reduce debt, and avoid negative financial outcomes, ultimately leading to greater financial stability and security.”
Discuss credit and debt. Debt may not be too scary for teenagers when it remains abstract. Yet, adults know the crippling effect of debt and low credit scores. It is critical to inform students about how credit works, good/bad debt, credit scores, and the long-term impact of financial behavior – paying bills on time, paying rent on the due date, and the dangers of misused credit cards. Young people who have a grasp on how financial behavior affects future borrowing will make better financial decisions as adults.
Introduce investing early. A basic introduction to compound interest and simple investment options, stocks, bonds, and mutual funds may be wildly beneficial to students. This is true because investing, even small amounts, as a young person will help tremendously in later adult life. There is no need to reinvent the wheel; great financial literacy resources are written especially for teens.
Encourage hands-on learning. The practical application of financial skills, such as setting up a bank account or tracking savings, is extremely helpful if possible. There are also inexpensive ($7) pen-and-paper financial ledgers for teens who enjoy the tactile experience.
Financial literacy will pay literal and emotional dividends for your student’s future. There is no need to go it alone; a great deal of help and encouragement is available for families to support teenagers in developing financial skills.
About TLC
The Lincoln Center for Family and Youth (TLC) is a social enterprise company serving the Greater Philadelphia Area. Among its five divisions, TLC offers School-based Staffing Solutions, Mobile Coaching and Counseling, and Heather’s Hope: A Center for Victims of Crime. These major programs are united under TLC’s mission to promote positive choices and cultivate meaningful connections through education, counseling, coaching, and consulting.