“Control your finances or the destruction will knock on your door.”
The teenage period is like a mold of clay, whatever structure is given, likewise will take that respective shape. Another interesting fact about teenagers is that, no matter what you taught them, they grasp it very easily, in comparison to adults. Every person needs to learn essential life skills which also includes managing finance.
If you come across any financial news, then you must have heard the term “Financial literacy”. The motto behind this term is to spread awareness of the financial conditions, debts. This helps people to make a clear and better understanding of how to manage or use their money, in a more effective way. This is a very required step because almost all 75% of the population are either in debt or not aware of how to spend their money.
It is very important for every person, especially teens, to learn about financial literacy. As it is the first step in order to achieve the ‘Financial Freedom’. If you’re parenting your teen, teach them as much as possible about financial literacy. As time flies, teens turn into adults when many burdens fall upon shoulders. As the studies said, only 20% of the population is financially literate. So, if you don’t want to fall in that 80% of the sector, then grasp these 10 must-know basics for becoming a financial literate.
What is Financial Literacy?
Before going deeper, let’s first have a basic definition of the topic. Financial literacy is to acquire knowledge of skills that allows an individual to make an effective decision, in terms of finance.
Now comes the numerous question into mind, such as “ How to learn financial literacy?” , “How will financial literacy help?” and lots more.
Well, now calm down!
Financial literacy is the collection of skills of decision making for spending money. Don’t let the word “literacy” mislead you. An individual can achieve financial literacy when he has the capability of doing the right things with money, bring out the right result. By grasping financial skills, the major financial issues will dance in front of your eyes. A financial litterateur would be filled with the knowledge about budgets and debts, loans and savings, funds, and taxes at the same time.
Here are the must to know ten basic concepts of financial literacy.
1. Budgeting – Simply to say, Budgeting is the process of creating a plan on the basis of how to spend money. The spending of money according to plan is called the budget. This type of plan helps you to determine beforehand of the money you can spend and a number of money will be left Budgeting balances your expenses with your income.
It may seem easy to say or read but in reality, it is quite difficult to do. Most people live on paychecks only. Because they can’t fill the gap between what they can afford with what they spend. But with the help of Financial literacy, a person can become regular budgeters. This will help you in the long run and give you a stress-free peaceful mind.
Ask your teens to get involved in this process. Allow them to make a budget of one month which will be interesting and immersive for them. Or at least ask them to create their own budget. This will improve teenager’s financial judgment and help them in their future. Throughout this process, they will learn how to balance income, expenses, and most importantly savings.
2. Emergencies – “There is always something which comes suddenly, debiting you with lots of money.” It comes in the disguise of accidents, hospital bills, housing calamities, and etc. So be prepared for this all by keeping some emergency funds.
As the study says, only 41% of the population can cover $1000 in case of emergencies. But Financial literature knows to make $1000 as an emergency fund. They do this every month which helps to cover the expenses during the downside. So begin by keeping 15% of your income as emergency funds. This helps you to stand firm during any tough financial storms.
3. Debt – Debt is the fast-spreading virus that slowly kills the people. It draws people towards by giving them a taste of sweet luxury and slowly corrupts life with stress and anxiety. This ultimately leads people to commit suicide. Peoples are weighed down by mortgage loans, student loans, automobile loans, and more. To pay off the loans, most people spend up to half their monthly income. A big part of the literacy helps to understand people that the time and money spent on debts, ultimately cut off future investments.
You might have seen, how much debt slows down the financial process. So teaching financial literacy skills in early time has become very necessary. Financial literacy must be taught alike in reading and writing, as it gives more practical lessons of life. Start paying off small debts first and then move towards a bigger one. In this way, potentially all the debts will be cleared.
4. Save for college – Every student dreams of going to a college but couldn’t go because of financial problems. As college brings more financial troubles all across the globe. But one’s action chooses the reaction. If a teen starts saving for college days from now, there will be no financial troubles.
If you’re doing a part-time job, then persuade them to make some savings. These activities will cultivate the habit of savings in the future too. It will help then to understand the importance of money in life.
Ask you, teens, to save money in banks rather than piggybank. By creating a bank account, a teen will get the lesson of money management and bank procedure. Small details like transaction alerts, financial statements, and more will put an impact and improve money management skills. Over half of the students who learn about these skills in high school pay their college fees by themselves.
5. Invest in retirement – As it is said, “It’s never too late for any beginning.” Almost all 70% of teens who take a finance class in schools, know the meaning of investment in retirement. You defeat any perils if you got a strong backup. And that is ‘investment’ for you. Start saving from now, so that you don’t have to work till the age of 60 for money. Don’t be materialistic, instead choose your hobbies and passion.
6. Taxes – Many teenagers aren’t aware of the true meaning of tax. A tax is a compulsory financial charge levied upon government employees as well as non-government Failing to pay tax is punishable by law.
Every parent should talk with their teens about taxes. They may not be tax liable now, but they’re going to be soon. These talks will help them to have a clear understanding between different tax funds. This will help teens in their future encounters of first tax filling.
7. Learn the difference between Wants and Needs – Surrounding cultures, peer pressure, show off rules the life teenagers. As they have the most unstable mind, they would often forget about their commitments toward budgeting, savings, and debts. That’s why a teenager needs to learn about the difference between ‘wants’ and ‘needs’.
Let’s take a small example, there is no wisdom in withdrawing savings for throwing a house party, just for showing off. Not just teens but even adults should avoid impulse buying. You shouldn’t fall into the trap of discounts and sales. This will burn your savings in a blink of an eye. Every teen has to learn the discipline between a want and a need.
8. Perils of credit cards – Credit card operators spread the honey trap and targets mostly the young age. By giving tempting offers and features, they turn them against their finance’s It is very important to educate teenagers about the dangerous second face of credit cards. This ultimately leads to the cycle of debts. But you can use credit cards by utilizing it properly.
9. Make your own money – “Having a strong background and experience makes the work easier.” It is good to have work experience before going to any full-time jobs. Making your money while at teenage, sharps your brain and builds the easy part for financial freedom and stress-free life. Although many parents are against this, making your own money just makes your child independent.
Teenagers have free time and they mostly waste. But by doing some jobs, it will make them realize about time and money; prepare them for future perils. They will learn many skills like money management, time management, and beyond. There are many genuine ways for making money. Especially for teens, they can make money through their hobbies. Such as writing, designing, or whatever the field they are great.
10. Taste the failures – Last but not least, tasting failure is very important too. It may sound weird but it’s true. Mistakes make a man wiser. Every teen should know that failing in financial decision is okay. But in return, you need to put more hard work and make it possible. Review your strategies, fix your mistake, don’t repeat it again. After all failure lessons will remain life long. It is the sworn duty of every parent to guide your children and advise them throughout their lives.
In this article, you will come across 10 basic but important concepts of financial literacy. This will help teens to have ideas about the challenges of life and improve day to day skills. This is not any crash course, rather, it is a lifetime course. I hope these financial literacy concepts will form the financial foundation for achieving financial freedom.