The importance of financial literacy for teenagers cannot be understated. With the right handle on personal finances, teens can set themselves up for a bright financial future.
Personal finance touches every aspect of our lives. When your personal finances are in order, it’s easier to avoid the stresses that poor money management can lead to.
The good news is that teens can learn valuable money lessons early. At this stage of life, teens have the opportunity to learn about personal finance. But they may have a couple of years to truly let these lessons sink in before they jump into their first major money decision.
The key money lessons below are a great starting point in financial literacy for teens.
11 Top lessons in financial literacy for teenagers
Again, money affects most of what we do in life. The earlier you learn about personal finance, the better. So, let’s explore personal finance for teens.
1. Figure out your needs vs. wants
When it comes to financial literacy for teens, one of the most essential lessons is learning the difference between needs versus wants.
Although this might sound easy on the surface, it can be challenging to truly separate needs from wants when creating a budget. That’s because needs vary a little bit based on the person.
A few basic needs include food, housing, transportation, and health insurance. Wants might include things like a new dress or an exotic vacation.
But sometimes the line between wants and needs gets blurry. For example, you might need a car to get to work. However, that doesn’t mean you need a luxury sports car.
So, learning how to determine what you want versus what you actually need is one of the most important lessons in personal finance for teens.
2. Live below your means
It’s tempting to build a budget based on your paycheck. But paycheck to paycheck living makes for a stressful money situation. Instead, make it a point to live below your means from the start.
A few ways to keep your expenses low include living with a roommate, cooking at home, and finding affordable hobbies. Living below your means will help you save more money and prevent you from being broke!
3. Set savings goals
Financial literacy for teenagers starts with understanding the importance of saving.
You can set savings goals for just about anything. Whether you want to build an emergency fund or save for a vacation, setting a savings goal is a good idea.
When you set a savings goal, break it down into smaller steps. For example, let’s say that you want to spend $1,000 on a vacation one year from now. You’d need to set aside about $83 per month to make that a goal a reality.
With this breakdown, you can make room in your budget to achieve the goal. Consider using a savings goals calculator to map out your progress.
4. Don’t wait to invest
It’s easy to save investing for a later stage of your life. But one of the best lessons you can learn as a teen is that time is on your side when it comes to investing. That’s because compound interest can help propel your investments forward.
Take a second to explore the power of compounding interest with this calculator. The numbers should help you find the motivation to start investing as early as possible.
Luckily, there are plenty of investment options out there. For instance, investing in the stock market, an IRA, or even starting your own business. There are plenty of ways to get started investing as a teenager!
5. Build skills
Financial literacy for teenagers is one of many skills that can propel you to success. In addition to building your money management skills, it’s important to commit time to learning other skills.
Some skills can help you land a job, others can help you save money around the house.
A few basic life skills you should learn include doing your own laundry, tidying your space, grocery shopping on a budget, meal planning, cooking, and simple handyman tasks.
Beyond these basic skills, consider learning skills that can help you obtain a high-paying job.
A few skills that can help you grow your income include entrepreneurship, web design, software development, public speaking, Search Engine Optimization, and digital marketing.
Continuously learning new skills helps you with your finances and life!
6. Create multiple streams of income
One financial literacy lesson for teens that is often overlooked is the importance of creating multiple streams of income. When you have multiple streams of income, you are less vulnerable to the financial fallout of losing a job.
For example, you might decide to pick up a side hustle on top of your regular job. Or consider putting your funds in a high yield savings account to make the most of an interest-earning opportunity.
If the worst happens, you’ll have other income streams to help you stay afloat. There are plenty of ways to make money as a teen, such as pet sitting, vlogging, and so much more!
Learning how to create multiple streams of income will help set you up for financial success later in life too!
7. Consider gross pay vs net pay
Financial literacy for teenagers often starts with a paycheck. It won’t take long to discover that there is a big difference between gross pay vs net pay.
Essentially, gross pay is the sum of your hours worked multiplied by your hourly wage. For example, let’s say that you make $15 per hour and you worked 10 hours. Your gross pay would be $150.
But you won’t see your gross pay on your paycheck. Instead, you’ll see your net pay, which is your gross pay minus any taxes.
It can be disappointing when you get your first paycheck and it’s not quite what you expected. But it’s important to understand the difference so that you can budget accordingly.
8. Learn what is a good vs bad debt
A key piece of financial literacy for teenagers is learning how to evaluate debt. A debt of any kind can be a drain on your finances. But in some cases, taking on ‘good’ debt is a necessary choice.
Many consider student loans to be a ‘good debt’ because a degree can open the door to higher earnings. However, it’s important to weigh the costs of your degree against the future earning potential that comes with your particular degree.
Make sure to explore your earning potential before choosing a particular degree. Even if you decide that your degree is worth the cost, consider pursuing scholarships and working as a student to minimize the number of student loans you need. Also, consider choosing a career path that doesn’t require a degree.
A mortgage is another example of what is thought of as "good debt." Buying a house can eventually be a good asset to own. However, you don't want to purchase a home out of your price range and become "house poor." Otherwise, this would be a very bad debt!
One of the top lessons in financial literacy for teenagers is that no matter what, you want to minimize the amount of debt you take on. Otherwise, it will cost you tons of money in interest, and you could end up drowning in debt if you're not careful!
9. Start building credit now
When you start thinking about personal finance for teens, a good credit score might not be your first thought. But it’s a good idea for teens to start building credit as soon as possible.
A good credit score can unlock better financing opportunities for major purchases. Since most plan to purchase a vehicle or home with the help of a loan, a good credit score is critical. It’s possible to save thousands on interest charges if you have a good credit score.
Plus, a credit score can help you save on utilities and get approval on a rental home. So, how can you start building credit? Start by checking your credit report each year to ensure that fraudsters don’t have any accounts out in your name.
Next, consider opening a credit card to use responsibly. Responsible use means making on-time payments in full each month and not maxing out your credit limit.
If you don’t feel ready for your own credit card, consider asking your parents to add you as an authorized user to their card to start the credit building process. Or you could consider getting a secured credit card to start with.
10. Get creative about building wealth
The world is changing. As a teenager, you have to face the challenge of building wealth in a new world.
The good news is that these changes have created many opportunities for creative entrepreneurs. Consider looking for ways to build your own business to set up your financial future. Don't worry if you don't have the funds to get started, you can start a business with no money!
Another creative wealth-building opportunity includes house hacking. In this strategy, you would save up for a down payment on your first adult home.
When you obtain the house, you get roommates to help offset the cost of the mortgage. With that, you can build equity in a home without taking putting too much of your own money into the mortgage.
As you learn more about financial literacy for teens, try to think outside the box when applying sound money management principles to your own life.
11. Improve your financial literacy as a teenager
Although we’ve covered financial literacy for teenagers, this list of advice is just the tip of the iceberg.
You can take action to improve your financial literacy with the help of our completely free courses. We can teach you how to build a budget, how to invest, side hustle strategies, and more.
If taking a course isn't your style, then try reading a book about personal finance for teens. One great option is What You Should Have Learned About Money, But Never Did by Sophia Bera.
Another great resource, Clever Girl Finance: Ditch Debt, Save Money and Build Real Wealth, was written by our very own founder, Bola Sokunbi.
You can even get advice from financially savvy family members!
Financial literacy for teenagers matters!
Financial literacy for teens is a critical topic. The younger you can learn about the basics of personal finance, the better off you will be.
Remember, you can get started by making a budget, saving more, and increasing your knowledge of all things money. So don’t wait, start learning more about personal finance for teens today!