How To Teach Personal Finance
Why Is It Important?
Teaching personal finance to teens is an essential part to an early education. Teenagers are just beginning to understand how the financial world works.
If we want them to grow up as responsible money managers, teaching them at a young age is our only hope.
With all the financial problems and the difficulties in finding jobs, every bit of money helps. Teaching our teens that lesson will help them succeed in early adulthood.
What To Teach?
There are few components of personal finance that teens absolutely need to know. Here is a list of things that we should teach them:
With in these topics there are a few others that need discussing.
Teaching these personal finance aspects to teens will set them apart from most people their age and most adults.
How To Teach?
The best way to teach children is to show them first hand how something works. Actually doing an activity is the best way to learn followed by games, etc.
- Income - Teens should learn about income and the differences in where they come from. This means it is time for a job. Working around the house for an allowance will do, but a real job works best.
- Expenses - Everyone has expenses. It is an illusion to believe that people don't have to pay bills which is why teaching teens about expenses will help them make better decisions when getting them self into debt at a later age. Set up one or two bills that they have to pay. By having them pay for a cell phone bill, car insurance, school lunch, etc. they learn about bills.
- Assets - Learning about assets and how to acquire them can mean the difference between a life of abundance or a life of catching up. A great way to do this is to have them buy something small like silver or stocks/bonds. It is not important for them to become a stock pro, but learning about assets and how they are essential to financial security is the lesson.
- Liabilities - The difference between assets and liabilities is the hardest lesson to learn or the easiest problem to head off. Teaching teens about liabilities when they are young can help them steer clear of big mistakes. The best way to teach them about liabilities is to give them a loan. Give them $100 and write a promissory note on a piece of paper. Teach them about how personal finance involves managing liabilities such as loans and that it is their responsibility to pay it back. This is a great opportunity to teach them about interest as well.
The next part is about the tools they can use to manage these 4 components.
- Budgeting - Sit down with them and write out a weekly budget including income and expenses. Include money that is to go to savings, investing, liabilities, etc.
- Savings - Go to a bank and set up a bank account for your teen. You can find out more information on setting up a bank account for your child here.
- Investing - This goes hand in hand with assets and liabilities. Start them on a consistent investing cycle where they put a little money to an investment you both have chosen every day. They can put the money in a separate place and when 60 or 90 days is up, take the money and invest it in an asset.
Teaching teens about personal finance is the best way to make sure they will know about finances. If you don't teach them, no one will.