• Susan Craig, at Content Creator


• 23.06.2023 12:15 pm
undisclosed

Financial matters are a significant part of life. As we age, many aspects of our lives involve financial decisions that can make or break our future. Teenagers, in particular, are still at a point where they’re learning how to manage their finances. This is why financial literacy for teens is essential.

Financial literacy skills can prevent poor money management and ensure a bright future for teens. Fortunately, they can learn them as early as now. Since teens like you can learn them now, you have more years to comprehend this skill until your first major financial decision.

Understanding financial literacy can be overwhelming. To help you, we outlined the fundamental financial literacy tips that can be your starting points for money management. Read on to learn these tips and what financial literacy means.

What is financial literacy?

Financial literacy is your comprehension and understanding of essential financial skills, including budgeting and personal spending management. It builds the foundation of your money decisions to support various life goals like college education, business start-ups, or buying your first car. It can also safeguard you from becoming a victim of financial fraud, such as bank and investment scams.

You can learn financial literacy through your parents, guardians, teachers, books, podcasts, and online resources. No matter how you learn it, it is a lifelong journey to establish your relationship with money. Nonetheless, the earlier you start, the better your financial literacy skills will be.

Financial Literacy Tips for Teenagers

Every financial decision can impact your life positively or negatively. Here are some smart financial tips to prevent the negative effects.

Define your needs and wants

The first thing to remember is to define your needs and wants. While it sounds easy, the reality is that it can be difficult to distinguish because you may confuse them with each other.

Needs and wants are different concepts that can overlap with each other. The former are necessities to survive, while the latter are desires you can live without. The overlap may happen when you feel like your wants are something you need, and vice versa. For example, you need food because you’re hungry but want to eat fast food.

Some of your needs include basic life necessities, such as healthy food, clothes, transportation, housing, and health insurance. Your wants could be materialistic things like accessories and luxurious cars.

The fine line between needs and wants can be confusing, but you can define them by asking yourself, “Do I need this, or do I just want it?” This kind of self-dialogue also helps you evaluate whether your wants are worth the money and can serve a purpose for a long time. If they’re not worthwhile and long-term usable, that’s when you know if you will still spend for them.

Learn how to budget

The spending habits you develop now can be carried into adulthood. This is why budgeting is among the critical financial skills you should have. Budgeting means tracking your expenses and creating a budget plan for daily, weekly, or monthly costs.

Most teenagers receive allowances from their parents or guardians. To create a budget, see if your parents or guardians give you money daily, weekly, or monthly to determine your available income. Afterwards, outline all your expenses and total them. This outline will help you set a spending limit, preventing you from overspending and becoming broke.

Set your savings goals

Spending money without thinking of the future can be easy as a teen because you have your parents or guardians to provide financial support. However, they will not be around all the time, especially in adulthood. So you should think of your future and start setting savings goals.

Savings are essential for your future because they can provide financial security and freedom. They can help prioritise potential life risks such as health emergencies and injuries. Setting savings goals can also provide an opportunity to pursue your passion.

You can start setting your savings goals by identifying the purpose (e.g., college tuition and expenses) and picking a deadline. Are your goals long-term or short-term? That question will guide your money-saving journey.

Image by Fabian Black on Unsplash

Start investing

Investing may sound like a heavy word, but even teens like you can start doing it. You can start investing using a custodial account where your parents or guardians control the investments on your behalf.

Investing as a teen can be an advantage because the investments have ample time to grow and leverage the power of compounding. Compounding is how your assets produce additional earnings over time.

You can invest in the following ways:

• Using a savings account

• Investing in the stock market

• Starting a business

Create multiple income sources

Allowances are not the only way to gain income. Financial literacy allows you to create multiple income streams to obtain money from different sources. These sources will be your backup if you’ve spent all your allowances, making you less vulnerable to financial distress.

One income stream is picking up a side hustle. If you’re good at something, leverage the skills and sell them to your classmates, teachers, and relatives. For example, when you’re good at painting, accept commissions and charge based on difficulty.

You can also do part-time jobs. Part-time jobs can provide a streamlined income source without affecting your academics. That way, you earn your own money on top of your allowances. Additionally, these jobs and side hustles can help you hone and build your skills for high-paying jobs once you become an adult.

Although you can apply and work part-time, remember to ask permission from your parents or guardians first.

Understand debts

Debts are borrowed money that should be repaid based on the agreed deadline. They can be daunting if left unpaid, so you should understand them now. Getting into debt is not necessarily bad, especially when you’re financially stable enough to pay it off.

Some debts you may incur from teen banking are student loans and mortgage loans. The former is for college expenses, while the latter is for housing investments. They’re considered good debts, but they can be distressing when you cannot repay them. Financial literacy teaches you to minimise the amount of debt you will take on to prevent you from drowning in debt in the future.

Build credit scores

Credit scores are valuable financial statements you can use to leverage many financial benefits in adulthood. A good credit score can save on costly interest rates and unlock purchasing opportunities.

You can build your credit score through credit cards by using them responsibly. You should make timely payments and not max out your monthly balance. If you’re not confident enough to use a credit card independently, try asking your parents or guardians to add you as an authorised user on their cards.

Become a Financially Smart Teen

Financial literacy is an acquired skill that can establish your future in adulthood. With this, you can make informed financial decisions that protect your income and savings. Become a financially savvy teen using these tips to ensure financial security and responsible financial independence to achieve your life goals.