The Importance of Financial Literacy for Teenagers - How to Prepare for Your Future
From credit scores to mortgages, today’s teenagers will soon have to make critical financial decisions for their future.
I’m Aryav, a content intern with Millie. Outside of Millie, I run The Teen Trillionaire, a youth-led 501(c)(3) nonprofit that is working to close the youth financial literacy gap by making personal finance resources more accessible to teens of all socioeconomic backgrounds. Today, I’ll help you begin your own personal finance journey by helping you understand the best way to prepare for your future!
Today’s teenagers will soon have to make critical financial decisions on everything from credit scores to mortgages, all of which will have a big impact on their future. But, unfortunately, due to a lack of real-world focus in schools and a cultural stigma around money, many find themselves unprepared to make educated choices.
What does it mean to be financially literate?
Financial literacy is exactly what it sounds like: it is the ability to understand and effectively use various financial skills to make money management decisions. Simply put, being financially literate means you know how to grow, save, and maintain your money through principles including budgeting, personal financial management, and investing. Common examples of putting those financial skills to use include managing a credit score, refinancing a loan, or even investing in index funds.
While financial literacy is the main “buzzword” used to describe the whole realm of personal finance, there are actually some important distinctions that need to be made between other similar phrases that some use interchangeably.
- Financial Literacy: The ability to understand money management principles, including but not limited to saving, budgeting, and investing.
- Financial Education: The means by which you achieve financial literacy; this can include formal educational classes/courses or a more informal education that many young adults resort to, such as advice from family, friends, or online research.
- Financial Capability: The ability to successfully apply your acquired knowledge of personal finance principles and strategies to your own life.
- Financial Independence: The desired outcome of both financial literacy and capability; when you can rely completely on your own money, through passive income streams, and have enough income to pay your living expenses without having to be employed or dependent on others.
“Financial literacy is a stepping stone to success — regardless of who you are.”
What is the financial literacy gap?
It’s no surprise that today’s teenagers and young adults aren’t as familiar with money management principles as they should be. Various organizations have conducted research into the so-called “financial literacy gap” and have uncovered some alarming statistics:
- 70% of parents don’t feel comfortable talking about money with their children (T. Rowe Price survey).
- Only 16.4% of U.S. students are required to take a personal finance course (Next Gen Personal Finance survey).
- 75% of millennials are not confident in their financial knowledge and skills (Bank of America report).
- Children begin to develop money management and usage habits at age nine (National Financial Educators’ Council).
Clearly, various factors can influence the financial education that a teen receives, such as socioeconomic background, income, school district, and geographical location. However, where the issue starts to become more than a localized shortcoming is the lack of focus on real-world skills in schools and a cultural stigma around money —both of which impact virtually every young adult.
“Without guidance from school and family members, it certainly can be difficult to learn about personal finance.”
As such, it’s imperative that teenagers take the initiative to become familiar with personal finance, even if they are not receiving sufficient support from their school or family. You’re in luck because I’ve put together a curated set of resources so you can begin your personal finance journey with ease!
What can you do to become financially literate?
The onset of the digital age means you have world-class personal finance resources at your fingertips. To help you get started, I’ve put together a list of organizations that will help you achieve a comprehensive and engaging financial education:
- The Teen Trillionaire: A youth-led nonprofit organization that aims to provide teens with an accessible and engaging personal finance education. Visit the website to book free financial consultations to create a financial plan to achieve your goals, attend weekly workshops to interact with other teens on their personal finance journey, and check out other resources, such as the blog, podcasts, YouTube videos. You can also follow the Instagram account for educational posts and to stay up to date with the organization!
- Investopedia: A website that provides articles on virtually all finance topics ranging from retirement plans to investing introductions to house buying guides. Visit their website to learn more about terms or concepts you’re unfamiliar with.
- Mint: A personal finance app and website that helps you track and manage all aspects of your money including budgets, credit cards, bank accounts, and investment accounts. Check out their website to download the free app. They also have a blog that offers a variety of practical advice on personal finance.
- Personal Finance QuickStart Guide: A book designed for teens and personal finance beginners that makes use of infographics and designs which make it easy to understand. Purchase the book on Amazon to get started.
- Finding Finance: An Instagram page with informational personal finance posts to make your feed a bit more educational! Check out their account and make sure to follow for weekly doses of financial education.
- Graham Stephen: A YouTube channel that explains important, relevant personal finance topics, such as investing and real estate, in an engaging and easy-to-understand format. For anyone who typically finds these topics boring, I can’t recommend Graham Stephen enough!
“The earlier you understand personal finance, the better you’ll be able to seize opportunities in the future!”
With all of these resources easily accessible, you’re ready to take on the world of personal finance! From credit cards to brokerage accounts, there’s nothing you can’t conquer with a little dedication, perseverance, and quality help from experts.