A survey commissioned by Northwestern Mutual in 2019 found that 80% of high school graduates (3.7 million teens) did not receive any formal education regarding financial matters in school. Knowledge is power after all and what better way to gain knowledge than by learning from your own experience?
The reality is that people who have a solid grasp on finance are more likely to earn more and be content with their lives. They understand the importance of saving, investing, identifying debt-inducing cycles etc. In other words they understand the value of money which often enhances their quality of life at all stages of life.
Financial mistakes are common especially when teens are just starting out their careers and yet to have healthy spending habits ingrained in their brains. Just like math, science or any other subject at school, there are some essential financial concepts that one needs to be clear about, learn and master over time. Here are the most common ones:
1. Misunderstanding credit cards
“Using credit cards can often be tricky for young people.” is a common misconception. We do not believe that using credit cards will make one spend more.
So, even though we are often limited to a fixed amount of cash we can withdraw on a single card, the problem of having money stolen or being robbed by muggers on the street when traveling is a thing of the past.
Another benefit credit cards come with is that they are great for cashbacks and offers, as it’s much less fussy than dealing with banks in person or over the phone as you have to do with bank accounts.
2. Not utilizing discounts
Banks, car dealerships, theater tickets, travel and cultural attractions are just a few places that more often than not offer special pricing for students or young people. However, it is up to us to call them and enquire about these student deals or look for information about such offers online and avail them. Our only tip: Seize the offer, my friend.
3. Signing up for loans that are too much of a burden
If you’re living in a place that leaves you with little money to spare, let alone enjoy life, you are more likely to make up for it by spending lots of money on credit cards or even get into debt for something such as paying for maintenance on an apartment or house that’s way out of your budget. It’s important to learn how to manage loans and strike that debt-to-income ratio responsibly so the debt can be repaid on time.
4. Underestimating the cost of adult life
When you’re young, your parents cover most of the expenses. However, as you step into that adult life, the burden falls on you and is for you to bear. That said, housing and food don’t come free and can be overwhelming especially if you don’t know what things actually cost on average month per month! Take entertainment for example – most adults spend 4k-5k a month on movies, OTTs, stand ups and several other platforms.
We recommend taking into consideration the price tag of these and many more small and big things when deciding how much money is required each month to keep pace!. The reality is that once you start making money for yourself — even just a little sum like 5k a month – you can be tempted to spend it rather than save it for later since saving your money often feels like something only achieved or experienced by those who have reached a certain age.
5. Not having a “rainy-day” fund
Having a bit of money set aside in your neo bank makes you ready for unexpected events. No matter the emergency, it’s always good to have access to a safety net like an emergency account so that you can pay for these things without having to get into debt or use credit!
6. Falling into the automatic pre-payments trap
You linked your gym to your bank account figuring you wouldn’t have to worry about missing out payments or late fees. However, it’s important to remember that if you’re not paying attention to transactions that are made, it could mean trouble in the future. For example, if there’s insufficient funds in the account, then more charges may result when they go through with moving funds around internationally without your awareness.
7. Opening an account with a significant other
You’re in love and moving in together, sharing a household, bearing expenses together, having joint accounts could come off as a token of love/dedication and more. . However, even with a steady job, your financial situation or private circumstances can rapidly change, as may the status of your relationship. In such instances, and when issues emerge, problems may develop quickly and either person could end up shouldering much of the financial burden alone.
8. Not regularly planning for the future
What do you want to do next? Do you have plans to one day own your own business, continue your education or go traveling the world? You may think planning for the future is only for people who are thinking about retiring. But everyone can benefit from financial advice and counsel! Getting in touch with a financial advisor, financial services manager or even having an evening discussion with your parents/ guardian over tea can will help you figure out, in the financial aspect, what needs to be done in order to follow your dreams!
As a teenager financial problems can be small but with time, they can accumulate and turn into a bigger problem which is why it is essential to learn about finances and how to tackle them from a younger age. The journey of financial learning is a long road and rarely with any destination, but it’s important to be as prepared as you can be. In this era of abundant information, you can surely make it with a couple of less mistakes and hiccups.