Teaching Financial Literacy: 5 Vital Concepts to Teach Your Teens

dad teaching daughter good financial habits

Some lessons are better learned the hard way. Any parent can relate – a skinned knee can tame an errant child better than the constant reminder to watch their step. At times, a child needs to fall in order to learn how to stand up.

However, financial dexterity is one of those life skills that shouldn’t be left to trial and error. Money lessons learned the hard way may seriously harm a person’s overall financial footing. The truth is, developing sound financial habits early in life is the best way to avoid disastrous financial errors as adults. Thus, teaching financial literacy should start as early as possible.

Preparing Your Teens by Teaching Financial Literacy

Children as young as three-years-old can already grasp the concept of value and exchange. Tapping into the kid’s inquisitive spirit, parents can start teaching basic money concepts. Since they have been exposed to money concepts a bit longer, parents can introduce more complex information to teens. Start with the following must-learn money concepts:

1. Budgeting

Budgeting concepts and keeping spending within the bounds of one’s income are a must when teaching financial literacy for teens. Setting aside a portion for savings and emergency funds should also be included. Currently, the savings rate is at a measly 3% per year. This can be changed by teaching financial concepts and underscoring the benefit of saving for rainy days.

2. Credit cards and interest rates

Credit cards and interest rates are an essential concept in teaching financial literacy. The minimum age requirement for credit card applications is 18-years old. Be sure to teach your teens the basics of how credit cards and interest rates work before credit card mailers flood your mailbox. Studies indicate that 25% of all debt has been incurred via credit card. Steer your teens away from this path by teaching them the basics.

3. Credit scores and credit history

Credit scores and credit history—and their significance—should be explained comprehensively. Parents should highlight the importance of credit scores as potential employers, landlords and businesses check credit history as a basis for trustworthiness. Teaching financial literacy also includes the importance of reviewing one’s credit history and tackling entries that may be hurting one’s credit score.

4. Big Loans

Big loans should be included in the curriculum when teaching financial literacy. Why? A student loan and a car loan are two potential big-ticket purchases teens will face. Teens should fully grasp the ins and outs of payment schedules, principals and interests. Without a good grasp of how loans work, they might not be able to handle a five- or six-figure debt.

5. Investment products

Investment products such as bonds, funds, stocks and shares can help people achieve financial goals. Educating teens about investment products can aid in making informed financial choices and better prepare for their future. Also, start introducing investment concepts by encouraging teens to join financial organizations like Junior Achievement or the Young Americans Center for Financial Education.

The Perils of Financial Illiteracy

According to Northwestern Mutual’s 2018 Planning & Progress Study, the average American has about $38,000 in personal debt excluding mortgage. The same study shows that younger Millennials, aged 18-24, lug around huge student loan debts even before they join the workforce.

Without a proper financial foundation, this pattern can carry on throughout a person’s adult life. Behavior that hurts financial health–such as maxing out credit card limits, taking out loans without carefully reviewing the terms, and paying no attention to credit reports–all contribute to swelling debt. By teaching financial literacy, teenagers stand a better chance at creating a future that is secure, safe and debt-free.

About the Author

Imee Rabang is a blogger/writer and bilingual poet from Manila, Philippines. She is an advocate of Philippine culture and supports causes that promote language and national identity. She juggles her time between work, parenthood, and community outreach programs. She also dabbles in photography and graphic arts in her free time.
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