Everyone needs to be financially savvy, yet there are things teens don't know about money. Lack of financial education typically starts at home. Parents may not help their kids establish a firm financial foundation, which forces many teens to learn about money the hard way. But even if a teen doesn't know the basics by the time they hit 18, it’s possible to catch up and become financially savvy. Here are seven things teens don't know about money.
Some adults don't know how to budget, therefore, it shouldn't come by surprise that this is one of the things teens don't know about money. It's certainly easier to spend than budget. But learning how to budget – even at an early age – has long-term advantages. Teenagers with jobs could be responsible for one of their expenses, such as a cell phone. Using income from part-time work or allowance, parents could teach their teens how to develop a spending plan and prioritize spending.
2. Interest is Your Friend
Although piggy banks are for young children, some teens keep money stashed in their rooms, perhaps under their mattress. This is dangerous. Not only is the money too accessible, teens aren’t maximizing their earnings. By opening a savings account – preferably one with a higher interest rate – teens learn how interest works at an early age.
3. Parents Can Make Mistakes
Nobody's parents are perfect. But if your parents give you money advice, you may assume that everything they say is golden. But unfortunately, some teens learn poor money habits from their folks. This doesn't suggest ignoring money advice given by parents, but you owe it to yourself to do your own research and learn the right and wrong ways to manage finances.
4. Prepaid Credit Cards Don't Build Credit
Many teens yearn for their first credit card. But since they can't qualify, they settle on prepaid debit cards. These cards are safe because you can only spend what you deposit on the card. Just know that prepaid cards are not like a credit card. These cards do not help users establish a credit history. If you want to build credit, you need a secured or an unsecured card issued by a bank.
5. The Perils of Credit Cards
Getting a credit card in your wallet might be a long-term goal. However, credit cards can complicate your personal finances if you're not careful. What some teens fail to realize is that it isn't enough to make minimum payments each month. You can make minimum payments, but if your debt is excessive, this hurts your credit score and reduces your chances of buying a home. If you get a credit card, pay off the balance each month, and only charge what you can afford.
6. Importance of Setting Financial Goals
Whether your goal is to buy a house or build a strong emergency fund, it's always a good idea to put your goals on paper, and post the list in plain sight. Unfortunately, some people fail to set financial goals for themselves. But when you go with the flow and let things happen on their own, you might never reach goals, or it can take longer than necessary to achieve results.
7. There Might Not Be a College Fund
Every teen wants to believe that their parents have saved a hefty college fund. But even if your parents were able to set cash aside for your education, it may not be enough to cover all expenses. Therefore, you might have to get a federal or private student loan. This results in debt after you graduate, but you can minimize debt by making in-school payments, or working and paying some of your tuition yourself.
Personal finance isn’t an easy topic, and it’s understandable that some teens graduate not knowing the basics. But with education and guidance, you can learn the best ways to manage your money. What are other things teens don't know about money?