Finance 101 for tweens and teens
Financial literacy is an important tool for teens who are preparing to enter adulthood or who are heading off to college for the first time. This education should begin early, according to experts.
Making sure your teens are prepared with the proper skills can make the difference between starting them off with a strong fiscal foundation and seeing them fall victim to common — and costly — financial pitfalls. We asked two experts about saving for long-term goals, establishing good financial habits and avoiding mistakes.
Our experts: Anne-Marie Bisson, vice president of Marketing and Financial Education at Lowell, Mass.-based Jeanne D’Arc Credit Union, which has an office in Nashua; and Jennifer Marsella, marketing officer at St. Mary’s Bank in Manchester.
What is the state of financial literacy among teens in New Hampshire?
Anne-Marie Bisson: “New Hampshire should be proud of its forward thinking and commitment to financial literacy. In a 2016 study by WalletHub.com, New Hampshire had the highest financial literacy in the country. However, less than half the states in the country are making financial education a priority. Not only does New Hampshire incorporate personal finances into economics courses, but they also offer an optional Personal Finance course and had the lowest dropout rate in 2016. Until legislation is passed to mandate financial education, New Hampshire teens should be encouraged to take the personal finance course in their school.”
At what age should a teenager begin thinking about their financial future?
Jennifer Marsella: “As early as possible. Introducing money concepts at a young age is ideal, and that can start as young as preschool. An excellent first step is for teens to open their own savings accounts. If they already have a savings account, the natural progression is to open a checking account with a debit card. As soon as teens get their first job, such as babysitting or cutting grass, it is important to begin thinking about money long-term by learning the difference between needs and wants.”
What are some of the most important early concepts teens should learn about finances?
Anne-Marie Bisson: “The first thing would be to understand the importance of starting to save early in life. Putting away a portion of an allowance, monetary gift or paycheck is critical. Teaching teens about the power of compound interest will help them see how their money can grow and therefore help them understand why saving at a young age pays off.”
Jennifer Marsella: “Learning the difference between needs and wants is pivotal. Adults understand that instant gratification is not always the financially sound choice, but this can be a challenging lesson for teens. Tied to this lesson is becoming aware of income limits and understanding how to budget. Teens need to learn how to budget the money they have rather than spend like they have the amount of money they wish they had. Teaching tweens and teens to save first and spend second is vital to their financial futures. A great way to start is for them to save for a specific goal. This provides an incentive for them to put money in a savings accounts first rather than spend it all or save very little.”
What kind of financial tools should a teen have by the time they graduate high school?
Anne-Marie Bisson: “As our young adults enter college or the work-place after high school graduation, they should know why they should save money; how a checking account and debit card works; the factors that make up a credit score and the importance of building and maintaining a good credit score; the rights and responsibilities of having credit; how to and why it’s important to budget; and how to protect themselves from fraud and identity theft. In addition, teens need to truly understand the cost of college, the types of student loans and the impact their college choice will have on their financial future. I truly believe that every student should be required to take a course in personal finance before they graduate from high school. By providing the financial tools they need to make smart financial choices, they will in turn build their financial wellness.”
Jennifer Marsella: “Opening a savings account is the first step for young teens. By the end of high school, teens should also have their own checking account with a debit card. Online banking and mobile banking (if he or she is 18 or older) make managing money quick and easy for teens. Saving and spending apps are also a good resource for teens to track their income and expenses. On a foundational level, teens should know the components of budgeting and how to establish one.”
Should teens begin to establish credit, by what age, and what’s the best way to go about that?
Anne-Marie Bisson: “Every person is different. Teens should begin to establish credit once they receive financial education on what credit it is, why it’s important, what a credit score is and how to use credit wisely. Some teens are more than ready to handle credit at a young age, while others are not. If your teen has a steady income, is responsible and understands the responsibility of credit, then they might be ready to take the first step of acquiring a low-limit credit card.”
What’s a common mistake you see among teenagers and their finances?
Anne-Marie Bisson: “One common mistake is enrolling in a program or service that automatically debits their checking account. Sometimes this happens when shopping online or if a student enrolls in a gym or music service where there is a monthly fee debited from their account. Often times these debits occur when there isn’t enough money in the account, resulting in an overdraft and subsequent fee. Before you know it, the teen owes the financial institution money, panics and just ignores it. We teach our students to pay attention to checked boxes online, be sure to understand their responsibility when entering into an agreement of any kind, and most importantly, if they get into trouble reach out and talk to us about it.”
Jennifer Marsella: “Teens tend to live and spend in the moment, which can set them on a path of poor financial choices. Learning that today’s money choices have lasting impacts is an invaluable lesson.”
What other benefits can parents expect from a teen who can manage finances responsibly?
Jennifer Marsella: “A greater sense of financial pride and accomplishment as well as more motivation for teens to earn their own money and establish their own financial lives. Children often model their parents’ behavior, so parents who manage money responsibly can take pride in helping their children become financially literate.”