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Financial Literacy for Teenagers: 6 Things to Teach Them

Posted by Lidia Staron on May 31, 2021 at 3:30 PM

credit-cardsOur world is in constant flux. Rapid digitisation, partly due to the global pandemic, has made information, work, education, services and products more accessible online. And since teenagers spend more time online compared to other demographics, it is no surprise that this added accessibility impacts their financial behaviour the most as well.

While online shopping may discourage frugality at times, internet use may also increase financial literacy as well. According to recent statistics, 61% of teenagers have already started actively saving their money in a bank account. Meanwhile, 64% had sought out financial advice already.

Why Should Teens Learn Financial Literacy?

Even if teenagers are more likely to become financially responsible on their own thanks to the information and inspiration available online, it is still our job as parents to increase their financial literacy.

Not only will it help our future economy, but it will also help your teen make smarter financial decisions that can potentially impact the rest of their lives.

What Is Budgeting?

The first lesson that you can teach your teen is what budgeting is. After all, it is more than just naming a set amount to limit spending each month.

More accurately, it is the process of forecasting one’s cash flow and creating a plan from the available information. It involves determining one’s potential earnings and expenses within a set time frame.

At the very least, you should teach your teen how to live within his means and be more mindful of how his money flows.

Understanding Compound Interest

If there’s one lesson that even adults get confused with, that would be compound (or compounding) interest.

In a nutshell, it is a method of interest computation that can increase one’s debt or savings at a staggering pace.

When applied to loans, it is the interest calculated not only on top of your principal loan amount but over any previously accumulated interest as well. It is different from a simple interest that is only based on the amount of the initial principal alone.

What is the Cost of Debt?

Another formula that one must learn how to compute is the cost of debt. It is the total amount of interest that you have to pay over the full term of your loan. Those with multiple debts can get the sum of their interests then divide it according to how many their loans are.

It is a good way to gauge whether a certain loan is worth pursuing or not. A lot of us have been conditioned to think that taking out a loan is something that should be avoided as much as possible.

However, let’s be honest. There are a lot of opportunities that can be accomplished with the right loan. For instance, taking out a loan to develop a product that you believe will generate revenue thrice the amount of your cost of debt, is a good financial decision.

Credit Cards

Speaking of opportunities, a credit card is a good tool to teach teens how to control their debt and spending. It is an efficient way to increase one’s credit score and prove financial responsibility.

Unfortunately, there are also a lot of us who have fallen into the pit of debt through irresponsible credit card spending. If only someone taught us how credit cards work.

How Bank Accounts Work

Here’s another important lesson: how bank accounts work. Help your teen learn more about the different types of bank accounts, financial products, and other banking alternatives. This will help them determine the most suitable saving option for them later on.

Why Credit Scores Are Important

If there’s one financial lesson that will stay relevant for the rest of your life, though, that would be the importance of a good credit score.

After all, it can severely impact one’s quality of life. An excellent credit score will help you get your dream car or house and put you in an advantageous position in negotiating favourable terms. On the other hand, a bad credit score can limit your employment opportunities and severely limit your purchase and lending capacity.

Learning to Pay Yourself First

Finally, here’s a lesson that even we forget as adults: how to pay yourself first. We understand how hard it is to put a price on your efforts, especially if you run your own business. But if you don’t know how much you’re worth, then how can you expect other people to know that either?

This lesson even trumps the previous one. Help your teens understand: your credit score, while important, doesn’t define you.

Don’t have a good score yet? That’s alright. There are personal loans for fair credit. There are even options for those with poor scores (even if they are significantly limited). 

Anyway, we hope that we have provided you with financial lesson ideas to teach your teens, while also giving you a refresher of the things that matter as well. Good luck!

Related Posts

Inspiring Children to Develop an Interest in Investment

How to Teach Kids about Money Management in a Practical Way

How to  Teach Children About Entrepreneurship

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