Teaching kids about healthy money management should start at a very young age. However, the real test of children’s financial literacy comes when they start taking on more of their own financial decision making, usually during high school and college.
During the high school years — as teens begin entering the workforce and considering major purchases like a car — parents should emphasize financial fundamentals and teach their children that they are in control of their financial futures.
The Valley News asked Upper Valley community and business leaders what financial lessons they think every high school graduate should know. Here’s what they had to say:
Compound interest — the idea of interest paid on the principal amount and accrued interest — is one of the most important concepts in personal finance. Teens should understand its power to help and harm their financial picture, said Daniel Hebert, president of the New Hampshire Jump$tart Coalition, which advocates for financial literacy.
“If you have a good understanding of compounding, you realize kids today have an enormous power to making money work for them” by saving and investing, Hebert said. At the same time, understanding compound interest can make teens think twice about taking on debt or deferring interest payments on student loans.
Use the compound interest calculator on the U.S. Securities and Exchange Commission website to illustrate the concept.
Credit isn’t just about accessing lending. Landlords and even employers check credit and use that as a judgment of a person’s responsibility. Make sure that teens understand the importance of good credit, said Lori Belding, a vice president at Bar Harbor Bank & Trust in Randolph.
“They should understand how a credit report and a credit score will affect everything from the cost of a car loan to the cost of car insurance, and that a low score might even prevent them from renting an apartment,” Belding said.
Show your teen how to pull and read their credit report and access their credit score. Make sure they understand how late payments and overuse of credit can impact their score.
In the age of digital banking, talking about the importance of cyber security is essential, said Jeff Marks, a senior vice president and chief marketing officer at Ledyard Bank in Hanover.
“We’ve realized that a very large percentage of individuals who you’d think wouldn’t get duped are in fact getting fooled,” Marks said.
He recommends talking to teens about the importance of not clicking suspicious links and monitoring their accounts for unauthorized charges.
Everyone wants to get rich quick, but Timothy Fisher, owner of Fisher Financial Advisors, says that his most wealthy clients are those who understand the power of saving consistently over time. High schoolers are in a unique position to start saving early and take advantage of compounding interest, so they need to recognize the potential benefits.
“Financial literacy is a slow, consistent process,” he said.
Use online calculators to show high schoolers how much money they can accrue if they consistently save, and how much they can lose over the lifespan of a loan. Spark their interest in the potential benefits to make personal finance a more interesting conversation.
“I bet everybody in the room knows who Kim Kardashian is, how many are familiar with the rule of 72? What is more important?” said Fisher, referring to an equation that tells you how long an investment will take to double at a set interest rate.