Teenagers, being at the cusp of adulthood and lifelong responsibility, need to develop and learn essential life skills that can increase their chances of leading a pleasant and high-quality life.
One vital life skill these incoming adults should learn is financial literacy, or money skills, in simpler terms. Possessing these skills is crucial in helping this young group of people make informed financial decisions and avoid pitfalls that can wipe away their entire savings.
Beyond that, embarking on a journey of financial literacy is also a game-changer in influencing one’s financial trajectory, as proper money management can turn financially-strained people into financially independent people. And the earlier a teenager can get this done, the better, as this would be indicative of a positive net worth.
That said, the world of financial literacy is a broad spectrum that touches upon many different variables. Being good in just one aspect may help increase one’s net worth, but having intimate know-how across all financial bases makes you all the more equipped to handle life’s inevitable financial crises.
So, this begs the question, what money skills should a teen familiarize themselves with?
Without further ado, here are six essential money skills that every teen should know to pave the way for financial independence later in life. Let’s begin!
1. Setting Short-Term and Long-Term Money Goals
It’s important to create both short-term and long-term goals to improve your lifestyle, make goals more achievable, and use your money effectively.
A short-term goal can be something like saving for a holiday overseas in the following months or buying a new phone by next week. On the other hand, a long-term goal can be like funding a college education, a wedding, or getting enough downpayment for a car in the years to come.
Both these goal categories differ in their timeliness, but the core concept remains the same—these goals help you create a better life for yourself. And, in a vast majority of cases, these goals require a sizable cash spend.
That said, a lot of people underestimate how difficult it is to create an effective goal. A goal should, first and foremost, follow SMART principles—an acronym that stands for specific, measurable, achievable, relevant, and timely.
For example, a well-worded goal would be something like acquiring $600 for a brand-new tablet before the school year begins. This goal hits all the checkmarks of the SMART acronym and is something that can be reverse-engineered to make it more achievable.
So, truly sit down and think of what it is you want to achieve in your life. If you already have goals, review and assess your progress, or pivot into something else depending on your personal motives.
By making these structured goals, you can become intentional with how you utilize your funds, which can make you more disciplined in following through with it and more likely to achieve success. See here for more information on how to create money goals as a teenager.
2. Saving and Importance of Delayed Gratification
Imagine this: you want to buy an expensive new tablet, but don’t have the funds to buy it just yet. What do you do?
If you have a consistent source of money steadily flowing into your account (as a teenager, this would likely be your weekly allowances or the occasional seasonal gift), then the only way to have a chance of snagging this tablet for yourself is by saving up for it.
The concept of saving up money is fairly self-explanatory. The purpose is logically simple to follow, but for many people, the temptations and impulse decisions can set them back from their money goals by weeks, if not months.
That said, making a savings goal is crucial if you want to achieve long-term goals. If you have trouble following a savings goal and always find yourself short on cash, we understand. To help drill the importance of saving in your head, we have a few tips.
Our first tip is to familiarize yourself with the concept of delayed gratification. Hold off on one-time, fleeting purchases—like your daily coffee run—in favor of the permanent, long-term dream.
Secondly, set a target savings goal relative to your monthly earnings. Review how much money you retain at the end of each month and try to see if there are purchase patterns you can cut down. Make a percentage-based savings goal (i.g. 30% savings at the end of each month) for the next months and try to fit your spending to ensure you hit your target goal.
Even if you don’t hit your goal, being disciplined with your savings habit can reap positive results in your net cash flow. In turn, this can make your financial situation improve bit by bit, bringing you closer to your long-term goals in the future.
3. Budgeting Your Money
Another essential money skill a teenager should know is creating a budget.
A budget is a financial tracking tool that tracks income, expenses, and current capital. It’s something that needs to be updated in real-time to be deemed effective, which can require a bit of initial discipline and motivation, although some parts can be automated and the payoff is very worth it.
This software can either be an app, a program on your computer, or a spreadsheet software like Microsoft Excel. Its primary function is to help individuals track their spending history and income status. However, it can also be designed to be made more complex, introducing things like financial ratios and graphs.
With the data extractable from the budget, people can make adjustments to their financial behaviors to better align and reach their personal goals. This applies to people across all age groups—from middle-aged folks planning for their retirement to teenagers looking to improve their financial literacy.
4. Making Sound Investments
Another crucial life skill you should learn as a teenager is knowing how and when to invest.
Teenagers have the precious resource of time by their side, allowing them to fully ride a stock or investment’s growth cycle as well as generate additional returns from their reinvestments through compound interest.
That said, teens should first understand the basics of investing. Familiarize yourself with the different investment vehicles available, such as stocks, bonds, cryptocurrency, and mutual funds. Know the pros and cons of each, as well as their associated risk levels.
If you have a custodial account or are not a minor anymore, consider diversifying your investment portfolio. This allows you to lower the risk of investment volatility, allowing you to truly capitalize on your investments.
Be sure to be tight with your investments early on. This allows you to get the hang of things and helps you better understand the ebb and flow of the market.
Once you’ve familiarized yourself with the chart, basic strategy, and other essential stock-performance indicators and metrics, then you can proceed with putting more money into your investment pool.
5. Using Credit Responsibly
Debt may seem like a solely negative term, but it’s possible to accumulate it and still come out on top.
Whether you’re using a credit card or applying for a small personal loan, credit can help you get the things you need without the need for immediate cash.
For teenagers, you’re likely not accessing credit to pay off a home loan or anything that extreme. Regardless, you’ll still be exposed to interest fees on top of your owed principal amount—which can accumulate if you fail to make repayments on time.
As such, it’s vital to be responsible with how often you access credit.
When utilized right, it can build your credit score and can instill a sense of financial discipline in you—two amazing perks. But when you’re overleveraged, it can lead you to a world of spiraling debt, which can be hard to crawl out of.
6. Conducting Money-Saving Research
Research skills are vital for many reasons—and one place where its relevance shines brightly is in the realm of financial literacy.
The reason is simple: conducting research can help you get the best deal for your various purchases. And the better the deal, the more money you save.
You can typically find good deals, better prices, and steep discounts and special offers by keeping an eye out on certain web pages at the right time. Sometimes, you can find coupons and discount codes on customer reviews, pop-up pages, and social media pages of the relevant stores.
When you uphold this habit of scouring for good deals, you can find yourself retaining a big chunk of money over time. This additional savings can go back into your pocket, giving you the freedom to use it however you wish (hopefully, in a smart way).
