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Recently, Georgia became the 13th state in the country to mandate personal finance education for high school students. According to Next Gen Personal Finance, Georgia joins Alabama, Florida, Iowa, Mississippi, Missouri, Nebraska, North Carolina, Rhode Island, Ohio, Tennessee, Utah, and Virginia in requiring teens to take at least one semester of personal finance before they can graduate.
While this growing trend of states requiring basic financial literacy be taught in high school is encouraging, it still means that only “35% of students in the U.S. will have access to a financial literacy class,” according to CNBC. A majority of children and adolescents will still need to get this education elsewhere.
Since money management isn’t traditionally taught in schools, the responsibility falls to parents. In addition to what we’ve previously written about what to teach your kid about money at every age, here are some basic financial skills every teenager should know by the time they graduate high school.
Every teenager should be taught how to set up a realistic budget. Teach them (with your own statements) to gather financial paperwork such as W-2s and pay stubs, utility bills, credit card statements, receipts, and all other financial paperwork relevant to their (future) income and expenses. After creating a list of monthly expenses, they should know how to break them down into fixed and variable expenses. Teach them to compare their total income to expenses, so they can either make a savings plan for their monthly leftover income or determine where to cut expenses so they don’t live beyond their means.
Kids and teenagers should be taught how to comparison shop, factoring in price, volume, and quantity on things like groceries, personal hygiene items, toys, sports equipment, and other incidentals—whether that be in the aisles of your local Stop ‘n Shop, or on Amazon. Take them on grocery shopping and narrate your own process of evaluating and finding the best value. Or give them a set amount of money and shopping list and challenge them to buy your family’s weekly necessities with those limited funds.
Money-saving DIY life skills
Being able to perform basic domestic chores can save you a pretty penny. Parents should actively teach kids how to do laundry, plan their weekly meals, mend and hem clothes, cook, clean, unclog a toilet or drain, and perform basic car maintenance, like changing the oil or swapping an air filter. They’ll be in a position to save cash they otherwise would’ve spent on tailors, maid services, takeout, and mechanics.
How to split a bill (and calculate tips)
Everyone should know how to split a restaurant bill and properly tip waitstaff. Teach your children to add tax and a bit more tip than usual to their amount (to cover for members of their party who will inevitably do the math wrong). Teach them also that philosophies on group payment differ. Some believe all group dining purchases should be divided evenly by the number of diners, regardless of who ate what, while others will calculate specifically for what they ate and drank. Kids should be prepared for both scenarios, and know how to quickly calculate a 15 -20% gratuity.
The importance of good credit
While the credit card industry would have our children believe that credit and spending power is free and plentiful and perpetually available, it’s our job to teach them it’s not. Help them grasp the importance of having fewer credit cards and paying their bills in full and on time, and understand how much they will pay in interest for carrying balances from month-to-month. (This is where you illustrate how easy it is to fall into debt; and how long it can take to pay it off.) Educate them also on the benefits of a high credit score—lower interest rates on mortgage loans, more likely approval on home rentals, and better car insurance rates.
How to set short- and long-term savings goals
Help your child or teenager set both short- and longer-term savings goals. This can start at a young age, by asking your child to come up with a toy they want, and challenging them to save a few dollars from their allowance every week or month to buy it on their own. Praise progress and keep it visual, as financial advisor Rachel Stewart told Fatherly, “either by keeping money in a clear container or showing your child their bank statement.” Being able to see their money accumulate is a great motivator.
As they get older, work with your teen to establish a long-term savings goal, like a car for example, and help them figure out how to tweak their budget, savings, and income to reach that goal.
Investing can be intimidating, even for people well into their adult years. Expose your child to the power of investing and the time value of money, either through a basic investing class, an app such as Greenlight or by letting them invest a small amount of money in a custodial account.