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Are Your Kids Prepared to Leave the Nest -- 5 Lessons They Must Know

May 10, 2016

With finance not a standard practice in high school, what lessons do your high schoolers need to know before heading out on their own?


We learn a lot in high school, but some of the most important lessons about money aren’t taught in schools.  Some teachers go above and beyond and teach their students some of these points, but it is not standard practice.  Here are the top 5 things about money that kids should learn:  

  1. How to make and follow a budget.  This process will help young people learn the importance of keeping track of their money and learn to pay themselves first.  How can you save consistently if you do not build it into your budget?  Many people live paycheck to paycheck and it doesn’t have to be that way. Luckily we have tools now that make budgeting very easy.  Mint.com allows you to link all of your accounts and will track your income and spending.  You are then able to make a budget and set up alerts so you can be notified when you are close to your spending limits for the month. 

  2. How to manage your credit.  Compound interest can be your best friend or your worst enemy.  If your money is working for you and earning interest it can compound into quite a sum.  On the other hand, if you are paying interest on a credit card each month, the principle can be hard to pay down and you can become trapped in a vicious cycle.  So students should learn how to check their credit score for free online, and about the different credit agencies and how to monitor them. They should be made aware of what factors influence their credit score and how to keep it high. If students were to learn about all of the cool things they can do with good credit like buying a car or house they might get motivated to keep a handle on their credit.

  3. How to save for retirement.  This concept is so far away for kids in high school, it may be a challenge to get them engaged.  Another way to think about this that might be more engaging is calling retirement “financial independence.”  When you don’t have to go to work anymore, the choice is yours.  In previous generations people had pensions, now they have 401k’s.  Students should understand how to invest within a 401k, take advantage of company match, and how inflation will affect their spending power. There should also be a good understanding of Social Security and the challenges it is currently facing.  And finally an exercise to determine what their finish line would be to have a certain quality of life in retirement. 

  4. How taxes work.   My girlfriend was lucky enough to have a teacher who wanted to help his students in life and walked them through properly reading a pay stub.  Many people don’t know what all those items are on their pay stub, nor what taxes they are paying.  But if students are going into the work force in the near future they should understand how withholdings on their W-4 work and how to use online tools to file for the first time once they are working.

  5. How investments work.  This is one that is taught to some degree, but I think there is not enough focus on it.  Students should leave high school with an understanding of the following: stocks, bonds, mutual funds, ETFs, indexes, CDs, money markets, and commodities.  This includes the risks of each one and the potential rewards.  They should also be shown the tools to evaluate specific investments online such as Morningstar and other information about companies such as balance sheets and cash flow statements.

I was lucky enough to do a project in my high school economics class where we invested fake dollars in a portfolio and it inspired me to get a bachelors in Economics and eventually become a financial advisor.  Looking back I wish I had learned all of these 5 things either in economics or another class specifically designed to prepare kids for life.  We focus so much on preparing high schoolers for college that many of these basics are overlooked.  Imagine the head start our youth would have in life if they entered the work force with all of these tools.  



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Written by: Chris Gall

Chris is a specialist in the design, implementation and servicing of 401(k) plans.
He takes pride in the fact that employees know him by name when he is on site at companies he advises.  Whether it is advanced tiered profit sharing, pension/401(k) combos, or detailed investment reviews, Chris strives to provide the highest levels of support and advice in the industry.
  
Wealth management and comprehensive financial planning are still a core part of Chris' business.  He works with clients to clearly define their goals, take a snapshot of their financial situation, then do his nerdy work to create a custom tailored financial plan for them.  Chris prefers the freedom of working on a fee basis for clients, but can also work on a commission basis if it is appropriate.  Chris holds his series 6, 7, 63, 66 licenses as well as the AIF® designation and California life license.   Chris enjoys reading, macroeconomics, football, hockey, technology, gardening, craft beer, guitar, music, and yoga.

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