Last week we gave you the first half of a list of essential economic concepts that every high school student should understand. Here’s the second half of the list!
The strength of investing – The most valuable investment a young person can make is in themselves. Whether it is a college degree or a trade school diploma, your child can create tremendous value in skills that will provide a positive financial return each year.
Mutual fund and stock understanding – Once your child grasps self-investment, next consider teaching some of the basic investment alternatives available to them. Stocks and mutual funds are the most common, but also consider explaining bonds, CD’s, annuities and other investment tools.
Budgeting – Help your student create a basic budget and then help them track their saving and spending against the budget. Don’t forget to mention an emergency fund to prepare for the surprises in life.
Cash flow – The hard way to learn the lesson of cash flow is when bill collectors are calling and there simply isn’t money to pay them. When creating an initial budget, show your child the flow of funds each month. An easy example of this is to show the flow of funds that relate to car. There are everyday expenses like fuel, there are monthly expenses like a car payment or insurance, and there are periodic expenses for licensing and maintenance.
Calculation of net worth – Assets (what you own) minus liabilities (what you owe others) equals net worth. This is the math of banks and businesses. The sooner your child understands this concept, the easier it will be to plan to purchase a car, a house, or any other item of value.
The value of identity – The value of a personal identity is the most undervalued asset owned by your child. Online media may seem free, but your child has paid for this access with their identity. With the advent of identity theft, government/employer access to personal online information and the proliferation of online advertising, consider helping your child understand the value of having a small online footprint. Help them establish healthy habits that will protect their personal information.
I hope you find this information helpful in preparing your child for a sound financial future.