April is National Financial Literacy Month; I am continuing my series on financial skills for teens. As a reminder, Financial Literacy is making informed judgments and effective decisions using money. Decisions about spending and saving will affect your entire life! Learning good habits regarding spending, avoiding debt and savings is very important for a good life.
As a teenager, one of your first goals is getting a car! So you start working and saving for your first car. First you need to get a job! It is not easy in this economic environment! You get lucky for this exercise and you get a good job where you can work as many hours as you want, but you are only earning minimum wage. You are still in high school, so your hours are after school and on the weekends. Your first check for forty hours after taxes is only $300.
For the first time in your life, you can do whatever you want with this money! This your first financial decision, what are you going to do? How soon do you want that car? What is your budget for the car? Are you paying for insurance, gas and maintenance? How much do you save? Say you decide to save $200 for the car. Another financial decision, what do you do with the rest? I know, you need new clothes, you want to take your girlfriend out or you want to go to the movies. These are decisions too, what will you do?
Now is a great time to learn what to do, when the consequences of your decision is not that big! You can develop good habits and learn how to make good choices. Parents can help with this process by guiding the teenager in their choices. The choices you make now will affect when you get your car and how much you can afford for that car! This is no easy choice! What will you do?
One of the choices is spending! Spending money is easy, but making good financial decisions is difficult. Soon you will have a credit card and spending will be even easier! A credit card will allow you to spend more than you earn! You can accumulate debt which is also a financial decision. The choices you make now and habits you develop can affect the rest of your life. Credit cards are a convenience and a responsibility! It is important to understand that and act responsibly when using a credit card. It will affect your future credit and credit score.
Savings and spending are the two most important habits for your life! Learning to sacrifice now to save for the future is an important skill and habit. Keeping your spending less than your earnings will keep you out of debt. This is one of the most important financial decisions anyone can make. Credit card debt will affect your future because it will take money away from you. Credit card interest is between 18-24% per year. What habits do you want to develop and keep? What kind of life do you want to have? What will you do?
Photo by: UggBoy/UggGirl
Jeff @ Sustainable Life blog says
April 19, 2011 at 3:03 amI think this is a great post on financial skills. I had some OK financial skills as a teen, but basically threw them out the window when I went to college and am still paying for it.
krantcents says
April 19, 2011 at 2:31 pmIn many ways, it is like maintaining a healthy lifestyle, you can go off occasionally but not all the time. It sounds like you recognize that.
Squirrelers says
April 20, 2011 at 5:49 pmI almost (not totally, but almost) want my kids to make some money mistakes when in high school, as teenagers. Then, they can find a way to learn from their mistakes and see how hard it is to make money and save it. Really, it’s best to learn important lessons one way or another when young. The stakes get higher as we get older.
Keep in mind I’m saying this from the perspective of being 100% in favor of financial literacy for teens – and preferrably kids younger as well.
krantcents says
April 20, 2011 at 11:53 pmI agree, it is the best time to make mistakes under the parent’s guidance. You can create the circumstance too. When our children were very young, we created situations where they made choices. Part of the choice was you had to stick with the choice. They learned about consequences of their decisions. I involved my children in investing, loaning them money and talking about their problem solving skills. The last may be the most important because we would talk about their decisions.