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My daughter and I were talking this morning about how she and her fellow classmates are not as financially savy as they could and should be. I am curious to know what you think are the most important lessons to make sure a high school student knows i.e how to balance a checkbook etc. What do you wish you would have learned at an earlier age? What financial pitfalls do you think kids should be aware of? How can we help to prepare them for a world where it seems that the economy shifts so drastically?
Thanks in advance for sharing your insights...
I'd say just in general an understanding of costs and balances. Many teens don't understand the correlation between income and what things costs and this seems to be a pretty prevalent trend.
Some others:
- How credit cards work (billing cycle, credit limits, fees charged)
- As previous poster mentioned, credit scores. Explain what affects them, how they affect them, and what FICO scores are used for.
- Investments, including compound interest
- Some financial responsibility (give them their own checking account and let them manage it)
- And most of all, changing the mindset of entitlement to one of reward for hard work!
From my personal experience, I think the best lesson would be to teach them about credit card responsibility, and about how the CC companies prey on the naivety of the young.
When I got to college, I opened up a mailbox at the student union, just like everyone who goes to college. Within a week, that mailbox was overflowing with pre-approved offers from various CC companies. Seemed like a great deal to me, so I opened up an account. Yada yada yada, a few years later I was about $8000 in debt, making minimum payments every month.
I wound up taking out a student loan, and used the money to pay off the card. This way I got out from the ridiculous interest rate, and postponed making payments until after graduation.
From the day I paid off that card 10 years ago, I have never carried a balance on my CC. I use my card every month, but I always pay it in full and never spend more than I can afford to pay.
This is the lesson I would teach high school students. As soon as they turn 18, the offers will come piling into their mailbox. And unless they understand what they're getting themselves into, they are likely to get in over their heads like I did.
I suppose this could go for some adults too, but learn about taxes. I've had a few couples at my tax desk this year who ended up with a tiny refund (or had to pay), because they did not factor in that the raise they got put them into a higher tax bracket. If you're near the top of your tax bracket now, a small raise could bump you up into a higher percentage of taxes being required at the end of the year. They never saw it coming.
1) Understand the full cost of debt (and with that understand the cost of not being able to save because the money is going else where - and with that avoided savings factor in compounding of the interest/dividends)... once they understand this I would think most would only get a reasonable home mortage, maybe a little student loan debt and that's it. If nothing else, this is the #1 lesson (because it assumes you understand the power of compounding on the savings side).
2) Understand the power of compounding of interest/dividends.
3) Live below your means.
4) Be charitable (not just money, but don't forget money)
Everything in moderation. You have to save, and the earlier the better, but you also need to have fun too. Teens aren't going to listen to a philisophy of unbridled frugality. People who've been restricted from spending a little now and then to have fun or buy the latest designer jeans tend to be poor savers in the long run. Teaching balance in your financial life is an important objective for teens.
Understanding debt, I dont think alot of people have a clue.
If you're $15 k in debt, making minimum payments, or close to minimum, you're not really "$15 k in debt, or $15 k in the hole". That's what the banks and lenders want you to think.
You're basically screwed for 10 years in a lopsided deal. You get all the stress and hassle of paying it off. You're a slave to a lender and they get to pull all the strings. You have the "honor" of paying it all back, plus a heafty interest rate.
The Bank CEO gets to ride in a Gulfstream jet while you make those tedious payments, its such a crazy game to get into. And you signed up for it.
Also, learning alot of market tricks and ploys. The average highschooler/college student is clueless about marketing and how entrenched it is in society. You sort of know it. But credit card companies have been able to turn loans into something to feel good about. A credit card (loan card) is a status symbol. Taking out a loan is status? Crazy.
Some marketing is harmless, you can take it in good fun. But some of it is very perverse and pretty twisted when you it affects your home, or your health.
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