There are basic financial topics that are not covered in high schools. These are often lost in the challenge to get kids through high school and on to the real world.
High school graduation is a major event in the life of every young man or lady. It gives each a chance to say that they’ve experienced a big moment in their lives. Unfortunately, on the morning after graduation, there tends to be a major letdown. Now comes the real world. Most kids are not ready to pursue their dreams for one of two reasons. First, they don’t know how to begin. Second, they have a fear of the unknown.
Here are a dozen financial topics every high school student should learn before graduation, that will get them started in the right direction.
How bank accounts work
It’s very important that you provide your teenage child a basic understanding of checking and savings accounts. As a new banking customer, show your child how to use checks and debit cards to pay for products and services with their money. Teach them how to access their accounts online, and balance their bank statements each month.
How credit cards work
Teach your child the importance of credit, and how it works. Your child needs an understanding of how credit card spending actually creates a loan. Too many young people create credit card debt and then get themselves into trouble. Emphasize the importance of paying the entire balance due each month, instead of the minimum payment, to avoid those excessively high interest rates that credit card companies charge.
The basics of income taxes
So many people suddenly make a generous amount of money, only to fall into debt with the government. Educate your teenage child to prevent this from happening.
You don’t have to teach your child to become a tax expert. Teach him to be a smart consumer who understands the basics of tax. When your student receives their first paycheck, walk through their pay stub and explain the taxes withheld, i.e., Social Security, Medicare, Federal and State Income Tax.
The advantages of building a retirement account
This may be a difficult concept for a young person to understand. You don’t necessarily have to educate them on the different types of retirement accounts, at this time. You do need to stress the importance of having something there to take care of them in their old age. A person setting up a retirement account at a very young age will be a self-made millionaire by the time he decides to stop working. The earlier you do this, the better for your child.
Credit scores, and how they work
Everyone has access to at least one free credit report each year. While the information contained in the report can be confusing, consider walking through your child’s free credit report with him to get him started on the right path.
Spending within your budget
Never waste money. Make the money, save it, then spend. This may be a little difficult to teach your teenage child. Helping him with this concept at an early age will give him a very good chance of creating some very strong financial habits.
The importance of saving money
Spending within your budget means that your student has healthy savings habits. Walk your child through the techniques that work for you. This may be setting up a separate savings account, and putting a set amount away each month.
The concept of investing
The most valuable investment your child can make is in themselves. At an early age, this could be a college degree or a trade school diploma. Your child can develop value and skills that will provide a positive financial return each year.
Understanding of stocks and mutual funds
Besides encouraging your child to invest in themselves, consider teaching him some of the other investment alternatives. Stocks and mutual funds are most common. Also consider explaining bonds, CD’s, annuities and other investments. Also, teach your child about an investment portfolio.
This is very simple. Help your child create a basic budget. Then help him track savings and spending against this budget.
Unfortunately, many adults don’t understand this concept. Many learn the hard way, when bill collectors are calling and there simply isn’t money to pay them.
When creating a budget for your child, show him the flow of funds each month. For example, show your child the cash flow in the upkeep of a car. There are everyday expenses like fuel, monthly expenses like a car payment, and routine expenses like car insurance.
Calculation of net worth
Assets (what you own) minus liabilities (what you owe) equals net worth.
This is the math of banks and businesses. The sooner your child understands this concept, the easier it will be to plan any major purchase – a car, house, or even a business somewhere down the road.
Teach these 12 financial concepts to your child before graduation. The sooner you do this, the sooner your child will be able to put these valuable resources into practice. The younger we are, the easier it is to learn and retain what we learn. You may be giving your child a head start to a very successful financial career. You’ll never know unless you do it.