Many high school students graduate without taking a single personal finance course. For better or worse, the education system expects that they’ll receive all the financial guidance they need at home.
The trouble is, staying on top of their finances is tough even for adults. How can you show your kid the ropes if you’re not a financial professional yourself?
Easy: With this list. Here’s how to teach your high schoolers about personal finance:
Nothing helps you take your finances seriously like earning your own money. You appreciate the value of money more when you have to work for it, which is exactly why you should encourage your high schooler to get a part-time job.
Don’t expect your child to be able to put in 40 hours a week when they have school responsibilities, not to mention any extracurricular and social activities demanding their attention.
Start with something local that only requires a few hours a week. If your son or daughter can’t find such a job in this economy, consider tying their allowance to a certain number of volunteering hours.
Once your high schooler has some money of their own, take them to the bank. Set them up with a savings account. Get them a debit card with a round up feature so they don’t forget to save.
On the trip, explain why it’s important to have some savings socked away. Savings are crucial for emergency situations, as well as for major purchases like college tuition.
Saving is only one part of budgeting. Help your kids get the full picture by budgeting their income, expenses, savings, and investments.
Kids may not have a lot of expenses to cover, but they do need to understand what they can afford. Talk through costs they pay directly, such as gas and meals out, as well as those you cover for them, such as their utility bills.
Your goal should be to give your son or daughter a realistic view of how much income they need for their lifestyle. That way they don’t get sticker shock when they finally move out on their own.
There are a lot of aspects of finance that aren’t applicable to high schoolers that they should still be aware of. To illustrate these concepts, you can pull up your own accounts and statements.
Financial concepts that fall into this category include:
- Interest accrued on debts
- Tax withholdings and credits
- Investment returns and dividends
- Recurring and automatic payments
- Court-ordered payments, such as child support or alimony
Don’t wait until your kids are fully fledged adults to walk them through “201” financial concepts. You don’t want them making financial decisions in the dark.
Make large purchases with your high schooler to train them for when they have to do so themselves. Perhaps it’s a used car for them to get to school or a new video game console they’ve been begging for. Whatever their high-dollar wants, they’re great teaching opportunities.
Big purchases can be made in one of two ways. If you have enough cash, you can make the purchase in full. Otherwise, you’ll need to buy on credit.
Explain how a loan works, perhaps even acting as the lender yourself. Explain the debt and payment structure that comes with it. Point out how much money interest adds to the total cost.
This is also a great opportunity to talk through credit cards. Explain the dangers of overspending just because you have a credit line. Encourage them to never buy something on a credit card that they couldn’t cover in cash.
Investing is something that many adults wish they’d started doing sooner. Encourage your high schooler to invest in a few stocks, bonds, or virtual currencies they’re interested in rather than simply dumping it all in their savings account.
Explain the concept of diversification. By sinking small amounts of money into multiple different investments, you reduce the chances of any one investment wiping out your portfolio.
However your high schoolers investments perform, seeing how investments grow and shrink is important. They need to realize that investments carry risk, and that they should never invest money that they can’t afford to lose.
While you’re at it, talk through retirement investing. Investment vehicles like IRAs and 401(k)s have tax benefits that make investing an even smarter idea.
Many big-ticket purchases are typically negotiated. When it’s time to buy your son or daughter a car, for instance, leave it to them to negotiate the deal. If they talk the dealer into an extra $500 off, perhaps they get to keep half of the spoils.
Negotiation is about understanding and leveraging your position. If it’s clear the car has been sitting on the lot for months, for instance, your child should point that out and suggest a lower price. They should be friendly but firm, and never be afraid to walk away from a bad deal.
What if your child bombs the negotiation? You hold the checkbook, so step in. If the debate is over $200, encourage them to cover the cost if they want it that badly.
The best time to start teaching your high schooler about their finances is now. It might not be the most exciting topic in the world, but they’ll someday be glad you did.