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Thousands of students have recently graduated from high schools across the country. While they may have the academic skills to progress toward a higher education, their financial skills are often lacking. Since these young, impressionable students aren’t often taught many financial fundamentals at school (only 17 states require that high school students take such a course), the responsibility of providing this type of education falls to the parents. Unfortunately, many feel inadequate discussing money matters with their children, due to their own lack of knowledge and financial mistakes.

It’s important to realize, however, that strong personal finance skills are an important element to an individual’s success. That’s why it’s essential for parents to set a good example for their children. By working to correct your own financial missteps and teaching your children to do the same, you’ll greatly improve their chances of continuing those good habits well into the future. Following are some of the top financial topics your teens should understand before entering the real world.

  1. Credit Scores

Many high school graduates are clueless about the importance of a solid credit score and the impact it can have on their ability to rent an apartment, purchase a vehicle, or someday obtain a mortgage. Missed payments and large amounts of debt can both have a negative affect on one’s credit, and once it’s destroyed, it can be very difficult to repair. A bad credit score can hinder teens more than they may realize, so it’s crucial they understand how to maintain a positive one by establishing smart financial habits.

2.   Savings

This is a big one. Many teens don’t realize the importance of having an emergency fund to cover life’s many unexpected situations, such as car repairs, doctor bills, and other costly incidents. With no savings, these unavoidable situations are funded by credit cards, which can result in escalating debt. If you’re still paying most of your child’s bills, it’s still important that they know how much they cost. I recommend having them save up their own money for anything outside of the normal realm of everyday expenses, such as a new car, vacations, or other expensive purchases.

Also, it’s never soon to talk to your child about the importance of saving for retirement. Whether they are gearing up for their college years, or going straight into the work force, they should understand the sooner they start putting money into a retirement savings fund, the closer they’ll be to a secure future.

3.   Bank Accounts

Understanding how a bank account works is a major part of entering the “real world.” Research different banks with your child to find a low-cost, basic online checking account and also teach him or her about the fees that could be associated each, such as minimum balance requirements and ATM charges. As silly as it sounds, give your child a tutorial of how to write a check, and to keep track of their spending habits with a debit card so they don’t incur overdraft charges on their bank account.

4.   Credit Cards

This is one of the most important points in this piece, as credit card debt can be detrimental to naive young people. Make sure you inform your teen that while 18 may be the minimum age requirement to apply for a credit card, that doesn’t necessarily mean he or she is ready for the responsibility of having one. Before applying for one, he or she needs to realize and understand the details behind interest rates, payment periods and amounts, the impact of credit card debt and how it can accumulate at an alarming rate.

5.   Budgeting

Last, but certainly not least, learning how to create a good budget is essential for your teen to successfully navigate the next chapter of their lives. Help them categorize their money and set realistic monthly goals for their living expenses and savings. It’s also important to teach them how to live within their means and never spend more than they earn.

The bottom line: Being a teen on the cusp of adulthood can seem overwhelming from a financial standpoint. With little knowledge about how to maintain good money habits, young people can find themselves in troubling situations. But as a parent, you have the power to instill in them positive habits early on that can have a positive impact on your child’s financial future. Don’t wait to teach them the fundamentals. They’ll thank you later.

Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and President of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs. Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family. Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.

More posts by Ron L. Brown, CFP®
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