High School Kids Should Learn About Finances, Saving, and Investing

Oct 8, 2019 by

High School Students Need to Learn About Finances, Saving, and Investing

Teenagers need to learn about finances before they’re old enough to get their first job. They need to be prepared to handle their money in a way that sets them up for the future. They need to know how to save, where to keep their savings, and how to grow their savings account. This fundamental knowledge should be taught in high school as part of the standard curriculum.

Until that curriculum becomes a reality, it’s up to parents to educate their own children.

Kids need to learn to save money the right way

Thanks to marketers, the idea of “saving money” has become synonymous with purchasing something at a discounted price. In reality, the only way to save money is to not buy that product at all. This confusion is intentional and designed to generate sales, but it puts teenagers in the wrong mode of thought.

Teenagers need to learn what saving money actually means: putting money into a savings account on a regular basis. However, saving money isn’t enough. They need to learn how to grow the money they save.

Teach kids to grow their savings account

Teenagers feel great when they get a paycheck, but without a financial education, they’re less likely to make smart decisions about saving and growing their money. Before they can make smart decisions, teenagers need to know what their options are for growing their savings account through various types of investments.

High school kids are too young to dive into high-risk investments in the stock market, but term deposits are the perfect low-risk investment option for beginners. They won’t need much money to start and the process is straightforward.

High school students with a job will probably be earning minimum wage. Even with a small paycheck, they can learn to set aside ten percent of every paycheck for two months and then place that money into their first certificate of deposit (CD).

Although long-term deposits earn higher interest, three years is too long for a teenager to wait for a return. When they’re first learning about term deposits, start with a short-term deposit of three months just to show them how it works. If you have excess funds available, put $300 into a short-term CD to get them started.

While their money is earning interest, teach them how term deposits work including how term duration and interest payment frequency affect the amount of interest earned. After they’ve learned how certain variables can affect the amount of earned interest, allow them to decide all the details of their next term deposit investment.

Teach kids to reinvest earned interest

It’s tempting to see earned interest as free cash, but teach your kids to reinvest the interest earned from their term deposit. Do the math with them to highlight how much money they’ll have if they continue to reinvest for the next ten years. To a teenager, ten years is a long time, but teach them to have patience.

Allow kids to make mistakes

You can also set your teenager up with a second term deposit and let them decide when to cash out or reinvest. Detach yourself from the outcome and allow them to make impulsive decisions if they choose. If they choose not to reinvest the interest at some point, do the math and show them how much money they would have made over the next year.

Put that dollar amount in terms they can relate to. For example, did they miss out on enough money to pay for car insurance? An iPod? A new iPhone? Allowing your kids to make bad decisions provides the opportunity to show them exactly why it was a poor choice.

Be your child’s backup plan

Although it’s great to teach kids how to save and grow their money, don’t rely on experimental investments to fund their future. Start your own investments to build a nest egg for your child to access when they turn 18. You only need to make small, regular contributions. For example, Australian parents who deposit $20 per week for their child starting from birth will see that deposit grow to nearly $25,000 by age 18.

To keep your teenager independent, don’t tell them about any investments you’ve made on their behalf. Let them learn how to save and invest under the impression there’s nothing to fall back on. When they turn 18 and need money for their first apartment, that’s the perfect time to grant them access to their nest egg.

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