In the race to get our kids through high school and on to life beyond, I’ve seen a breakdown in the education system to explain basic financial skills. Here’s the first half of a list of essential economic concepts that every high school student should understand.
How bank accounts work – Provide your child with a basic understanding of checking and savings accounts. Show them how to use checks and debit cards to pay for goods. Teach them how to access their accounts and reconcile their statements each month.
How credit cards work – Help your child understand that credit card spending actually creates a loan. Emphasize the importance of not carrying a balance by paying off credit card debt each month.
Tax basics – Prepare your child to anticipate taxes on not just purchases but on their wages as well. Assist them to fill out their first W-4 and explain how it will affect their paycheck. When your child receives their first paycheck, walk them through their paystub to explain Social Security, Medicare, and federal and state tax withholdings.
The power of a retirement account – It might seem a little early for this, and it’s a hard concept for a young person to grasp, but explain to them the advantages of long-term savings tools like a Roth IRA.
How credit scores work – While no one but a credit reporting service actually understands all the aspects that go into creating a credit score, it’s still important to teach your child what can impact their credit and how that can affect their ability to get a car or house loan in the future. Everyone has access to a free credit report each year. Walk your child through their report.
Spending within your means – Save then spend. This is a simple concept that is hard to accomplish. By teaching your child good habits early, you give your child a stable financial foundation for the future.
The art of saving – Part of spending within your means and saving go hand-in-hand. Teach your child healthy savings habits. Perhaps it’s setting up a separate savings account, setting aside a set amount each month or even a percentage of what they earn.
Look for the second part of this article next week!