Expert Tips: Teen Finances
As a teenager, I didn’t know much about finances. I had a savings account, and I understood a little bit about interest and how it could grow. But I didn’t know much beyond that. That was a few decades ago, though, and today’s teenagers must know far more. Right?
Or, maybe not so right. In fact, the Jump$tart Coalition surveyed financial knowledge among high school seniors, and the average student scored only about 48 percent on a test about money. That score was even worse than the 2006 survey when seniors scored a slightly better average of about 52 percent.
Worse still, some of the wrong answers from the students seem pretty surprising. Consider this: More than half of the high school seniors tested in the 2008 survey thought that they’d pay the same finance charges whether they pay off a credit-card balance in full or pay just the minimum payment. That’s pretty scary, especially when these seniors will soon be lured into debt by flocks of credit-card offers coming in the mail.
So how can we teach teens to handle money better? To find out, I searched for experts and asked them:
If you could give teenagers three brief and simple pieces of financial advice, what would they be?
One valuable financial tip is to aim at something. For almost everything in life, it never hurts to have a goal. In thinking of money tips for teens, Debra Pankow, PhD—who is a family economics specialist at North Dakota State University and chair of eXtension Financial Security for All Community of Practice—says:
I guess I would tell kids—and my two youngest are 18 and 16, so we have had this conversation—that they can have what they want out of life, if they know what they want. And if it has a financial price tag, they can achieve it with wise use of their resources—their time, skills, and money.
To learn more, look at What Are Smart Goals?
The Top-3 Tips
To make smart goals, it never hurts to know some money basics. From the experts polled here, the most-common three tips are:
1—Save.
Nearly everyone polled points to the value of saving. For example, Paul Golden, spokesperson for the National Endowment for Financial Education, says:
Learning to save money is a basic, but essential, skill. Saving helps deal with financial emergencies and develops solid goal-setting habits.
He adds:
The most effective way to save is by paying yourself first. Put money in a savings account before spending it on anything else. Remember: The sooner one begins saving the better.
2—Understand the Time-Value of Money.
This tip feeds directly off the first. That is, be sure to understand that money saved can grow—really grow—with time. As Michael Rupured, MS, AFC, an extension consumer economics specialist in the College of Family and Consumer Sciences at the University of Georgia, says
Thanks to the magic of compound interest, the first dollar saved is worth significantly more over time than the last dollar saved. The earlier you start saving for the long-term, the greater the benefit. If young people—or their parents—really understood this concept, we’d have a lot more savers.
3—Spend Less Than You Earn.
As Tricia, who runs Blogging Away Debt, says:
If you don’t have money for something, save up for it. Don’t put it on credit cards.
She adds:
I speak from experience, after accumulating $37,000 in credit-card debt. It’s been a costly lesson—over $10,000 in finance charges!
When discussing spending less than you earn, Lynnae McCoy at BeingFrugal adds:
If you follow this rule, your finances will be in good shape for the long haul.
Digging into Details
Those top tips would help any teen. In fact, turning those ideas into practice could make most any teen a good money manager. Still, the experts offered other pieces of very useful information.
For example, a key to solid finances depends on knowing where your money goes. Kay M. Palan, PhD, associate professor of marketing at Iowa State University, recommends:
Keep a diary for a couple of weeks, recording how and on what you spend your money. You’ll learn a lot about your personal spending habits.
Once a teen knows where the money goes, it’s time to figure out where it should go. That means making a budget. A teen’s budget can be pretty simple: maybe just a few columns for expenses—such as clothing, entertainment, savings, or maybe paying back a loan to the parents—and another column for income. As long as the income is bigger than the sum of the expenses, this budget meets one top tip: Spend less than you earn.
By making a spending diary and then a budget, a teen might learn another crucial key to financial success: needs versus wants. Golden explains:
It helps to really understand the difference between needs and wants when it comes to spending. For example, many teenagers need a cell phone for convenience and personal safety reasons, but custom ring tones, wallpapers, and games are certainly wants.
Once a teen learns to distinguish between needs and wants, spending wisely becomes easier—or at least doable. Moreover, that wise spending will make all the difference in the long run. According to YoungBiz’s Money Skills:
People who have great financial success in life are not always the people who earn the most money. Instead, they are the ones who know what to DO with their money. They set goals, make plans, and practice good money management.
There are some very simple ways to use money in wiser ways. For example, Linda Sherry, director of national priorities at Consumer Action, says:
Comparison shop for items or services—such as cell phones—to get the best price.
For other wise-spending ideas, Sherry suggests:
Buy a gently used car—not a new vehicle. Consider buying other vintage or used items.
Likewise, teach your teens this mantra from Tricia:
Just because it’s more expensive doesn’t mean that it’s better.
More than Money
It’s easy for finances to become simply $’s and ¢’s, but there’s more to life than that. As says Barbara O’Neill, PhD, an extension specialist in financial resource management at Rutgers, says:
Take care of yourself. The greatest wealth is health.
Rupured adds:
Invest in yourself. Finish high school. Continue your education beyond high school. Even if you’re sure you are destined to be the next great athlete or entertainer, have a back-up plan just in case.
Just a little financial knowledge can make the difference between bullish and bankrupt. With that knowledge, plus some dollar discipline, your teens will enjoy an easier life.
Other Links Worth Exploring
NEFE High School Financial Planning Program Web Portal