How to Teach Teenagers About Money so They Become Financially Prosperous Young Adults

Today I share a guest post from a high school math teacher who I recently met (online.)  As you might imagine, I get a lot of offers for guest posts, and as a rule I generally don’t accept them.  No offense to anyone, but this is my little space and I really try to hoard it  keep it consistently in my voice…

However.

However:  it’s summer, so things are different here.
And: I like this guy, and appreciate what he’s doing.
And finally:  This topic happens to be a BIG ONE in my house currently–both for my husband and I, and our kids. (hello high school graduate, currently washing dishes at Lei Leis restaurant, and thinking hard about his future: colleges choices, debt, and anythingbutwashingdishesforaliving.)

So when Jacob from Dollar Diligence reached out with his idea for a blog post, I said a very quick YES!  I hope you’ll find it practical and encouraging, and I hope you can hop over to HIS SITE where you can subscribe to receive future articles, and encourage him in his blogging endeavors (God knows that school teachers could use a little extra support, right!?)

Now here’s a warm Hawaiian welcome to Jacob, of Dollar Diligence.

Regardless of the time of year, it’s a challenge to get teenagers to think about much more than running around with friends or checking social media without the responsibilities of school dragging them down.

As a high school math teacher, I know this all too well.

But teens are in their prime when it comes to learning the skills necessary to lead a fruitful, dare I say… responsible… life as an adult. Financial education is a big part of that skillset, but it isn’t being taught with much consistency in any classroom I’ve seen.

Knowing about personal finance gives teenagers the foundation they need to get through many of life’s money-related challenges without going broke and without turning to mom and dad for constant financial help. While that may be obvious, how to teach teenagers about money isn’t.

We can do teenagers a serious favor by talking to them about their future and trying some of these simple tips and tricks to get them engaged with money before they are completely on their own.

Make it Exciting!

When we don’t know much about money and how it works, there is little to get excited about. Without some level of excitement, teenagers simply aren’t interested in the task at hand. Getting jazzed about money may seem as though it’s an uphill battle, but in reality, it just takes a little creativity.

In one of my classes, I used the basics of compounding to get my students more engaged with how money works. Albert Einstein said compound interest was the “greatest mathematical discovery of all time” and once it is explained, that statement is hard to argue.

So here’s what I did:  I took a straw poll in one of my classes asking students how many of them would bring me a penny each day, and double it each day, for the next 30 days if I would give them an “A.”

I was shocked to see that 7 out of 18 students were adamant that they would bring me the money to avoid having to do any work for the next 30 days.

 

That’s when I revealed this to them:

 

A penny doubled each day for 30 days amounts to just over 5 million dollars.

 

5 MILLION FREAKING BUCKS.

 

After I picked my jaw up off the floor when I realized how many of my students said they’d pay me this, I discussed with them the 8th wonder of the world: “Compound Interest.”

 

My point is simple, to truly teach students about money, we need to get their attention.  How will this affect their future?

 

It’s easy for adults to see this and realize it, we’re living it!

 

For a 12 year old, or even a 17 year old, it’s difficult to fathom a life that’s five or ten years in the future, that’s where we come in!

 

This is the classic compounding interest formula that I thought every human had seen or heard.

Over time, compounding exponentially increases the amount of an investment because there is interest earned on interest. Showing teenagers what that looks like with just a penny a day, which is what I need in my classroom, got them excited about the concept while proving a crucial life lesson – to be successful with money, it pays to think about and plan for the future.

Give Real Life Examples

Teenagers are well past the age of appreciated sugar-coated information. They can handle the truth, so let that be our guide in teaching them about money management. Breaking down costs of different opportunities, like going to community college versus a private, out-of-state university or buying a car after graduation instead of saving for the future, is a necessary step in giving teens a head start in their financial lives.

We can offer up real life examples of what things cost, from small purchases to significant expenses, to give teens an idea of what they need to be prepared to pay for once high school ends. It doesn’t have to be a scare tactic, but the information should be realistic if it’s going to stick with them.

Show Them the Value of Money and Work

While I do not have kids currently, I have a clear plan if they come in the future for how I will teach them about the value of money as it relates to work. I won’t pay an allowance every week just because; I will pay them after they have completed a task. It’s important to teenagers to recognize that money doesn’t appear out of thin air, but that it requires effort to truly earn it over time. It isn’t an easy lesson to teach or to learn, but it is powerful when teens understand the value of working hard to earn their keep.

Have the College Talk

Nearly 42 million adults throughout the country are burdened with student loan debt, to the tune of $1.3 trillion.

Trillion!

Managing money right out of college is hard enough without the challenge of paying hundreds of dollars every month to a student loan servicer. I hate student loans, so I figured out a way to pay mine off in a shorter amount of time than most people ever will. But teenagers, without any understanding of how student loans work, are bound to repeat the mistakes of millions of borrowers before them, leaving little left for long-term savings, buying a home, or any other big financial goal they may have.

In teaching teens about money, it is necessary to have the college talk. A degree isn’t an option but now nearly a requirement to get a job that pays relatively well. While most teens can wrap their head around that information, how to pay for that degree isn’t as simple.

Have an open and honest discussion about the options for paying for college, how compound interest works on debt including student loans, and how to avoid common missteps once they head off to school. Make sure they understand how repayment works, how much they may pay over the life of the loan, differences between private and federal student loans, etc., etc. The only way to keep the student loan debt crisis at bay is to educate teenagers about the cost of getting a higher education before they step foot in a college classroom.

 

Final Thoughts to Consider

Teaching teenagers about anything can be a tall order, especially when it comes down to topics they may be completely unfamiliar with. Start the financial education adventure with a heavy dose of excitement by focusing on concepts and practical skills that are engaging and speak to teens’ interests.

Make sure to provide real life examples without scaring them straight, and show them how hard work turns into cash in hand. I think we can all help teenagers grow into prosperous young adults by educating them on the cost of college and strategies for avoiding a burden of debt at graduation. Above all else, keep it positive and personal, and teens will thank you for it later.

 

Jacob is a personal finance blogger over at Dollar Diligence. Follow him for more advice on making and saving money @DollarDiligence.