Key Takeaways:
- Personal finance refers to how you earn, spend, save, and invest your money.
- Financial literacy encompasses your understanding of personal finance topics.
- Thirty-nine states in the U.S. require students in grades 9-12 to take a standalone personal finance course, or one that integrates it, for high school graduation.
Six in 10 people avoid money talk.
They’d rather discuss politics or death.
Let that sink in.
Instead of asking, “What is personal financial literacy?” or sharing their monthly budget, most individuals would prefer to chat about their own demise and the U.S. government.
Money remains the last great taboo, in part, because people struggle to manage it and don’t want to admit to their perceived failure.
But that could change as more states require high school students to take a class on personal finance in order to graduate.
What Is Personal Finance?
Personal finance refers to how you earn, spend, save, and invest your money.
It’s the strategies employed and habits developed, such as:
- Building an emergency fund for unexpected expenses
- Comparing the total cost of college options, including tuition, fees, and financial aid
- Tracking how much you spend on food and clothes
- Paying your credit card off in full each month
What is Financial Literacy?
Financial literacy encompasses your understanding of those money topics.
You can’t exactly set a budget or maintain a good credit score if you don’t know what those terms mean – and most people don’t.
In 2021, less than one-third of Americans got all answers right in a three-question survey about personal finance.
Why Is Financial Literacy Important for High School Students?
Financial literacy and personal finance matter for high school students because when you manage your money well, it becomes easier to accomplish your short- and long-term financial goals, such as:
- Graduating college with no debt
- Purchasing a house
- Attending a concert
- Going on a vacation
- Retiring at age 65
Becoming well-versed in money at a young age helps you avoid costly missteps and benefits the broader U.S. economy too.
More than two-thirds of American adults live paycheck to paycheck and 29 percent hold more credit card debt than emergency savings.
Research shows people with a strong understanding of personal finance:
- Accumulate more wealth
- Manage loans better
- Use high-cost borrowing methods, including payday loans, less often
- Refinance their mortgages when it makes sense to do so
What Are the Basics of Personal Finance?
Five areas shape how you manage your finances:
- Income: The money you bring in. It can come from a part-time job, babysitting, an allowance, or even investments. Knowing how much you earn allows you to determine what you can spend and save.
- Spending: The outflow of your cash on things such as food, gas, clothes, and going out with friends. You should always spend less than what you make, or you risk falling into debt.
- Saving: The portion of your income set aside for emergencies and future goals. You should aim to set aside 20 percent of what you make.
- Investing: The assets you purchase, such as stocks, bonds, and mutual funds, with the goal of growing your wealth over time. Investing can build long-term wealth, but it also involves some risk.
- Protection: The methods used to shield yourself, your loved ones, and your finances from unexpected events. This includes life and health insurance and estate and retirement planning.
How to Improve Your Financial Literacy
Just like the subjects you learn in school, it takes some studying to improve your financial literacy. Ways to do so include:
Books and online resources
Countless books on personal finance exist. You can check a few of them out from your local library, giving you a variety of perspectives on money management.
You can also follow reputable creators who specialize in personal finance content or listen to podcasts that offer practical advice on the topic.
Courses
To gain a more in-depth understanding of how to manage your money, you could enroll in a personal finance course through an accredited institution, such as Portage Learning.
Its online, self-directed format allows you to learn anytime from anywhere. If your state mandates financial literacy education, the course may also fulfill the requirement. The topics it covers include:
- Personal finance fundamentals and decision making
- Income and careers
- Spending and budgeting
- Saving and investing
- Risk management and insurance
- Credit and debt
“It’s very comprehensive and covers personal finance well,” Nick Lagios, the course professor, explains. “The earlier you learn about these principles, the better. It has a lifetime effect on you.”
Financial planning seminars
Community organizations, local banks, and credit unions often host free events and live webinars on personal finance.
They do so to recruit new clients, but you can attend just to learn more.
Personal Finance Tips for Teens
As you gain more information about money management, put the knowledge into practice by implementing a few of the following habits:
- Creating and sticking to a budget: A budget tracks where your money goes and prevents unnecessary spending. You can start by writing down your income and expenses then setting spending limits for different categories and make an effort to stay within those boundaries.
- Setting short- and long-term financial goals: Financial goals give you something to work toward. Do you want to purchase a car? Save for a new phone? Determine how much money you need and set aside a specific amount regularly.
- Signing up for student discounts: Many companies offer lower prices on everything from clothes to streaming services for those in high school and college. Before making a purchase, ask a business whether they offer a student discount.
- Saving a portion of your income: When you receive money, whether from your allowance or from another source, pay yourself first. Putting some of that money away – even a small amount – rather than spending it immediately adds up over time.
- Getting a part-time job: A part-time job allows you to earn money while learning valuable skills such as responsibility, time management, and communication. Many employers offer positions that fit around your school and extracurricular responsibilities.
How Can Parents Help Teens Learn Personal Finance?
Parents can improve their child’s financial literacy by discussing the connection between emotions and money.
Teach them to pause before making a purchase or to consider whether they want or need an item. The acronym HALT advises you not to shop when:
- Hungry
- Angry
- Lonely, or
- Tired
A survey from LendingTree found feelings influenced 63 percent of Americans’ purchases. It makes them feel better in the moment, but afterward, nearly three in four admit their emotions led them to overspend, and 44 percent say it negatively impacts their financial well-being.
You can also talk about money openly and often with your teenager, which normalizes the topic for them. Alternatively, you could consider opening a bank account so they can learn how to use a debit card and employ some other personal finance strategies under your supervision.
Which States Require Financial Literacy in High School?
Thirty-nine states in the U.S. require students in grades 9-12 to take a standalone personal finance course, or one that integrates it, for high school graduation.
They include:
- Alabama
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Michigan
- Minnesota
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- North Carolina
- North Dakota
- Ohio
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- Tennessee
- Texas
- Utah
- Virginia
- Washington, D.C.
- West Virginia
- Wisconsin
Financial Decision Making for Your Future
As the saying goes, money talks.
However, not everyone discusses money – and that can be detrimental when it comes to securing your financial future.
It may feel taboo, but educating yourself on personal finance and improving your financial literacy through resources such as conversations and courses will pay dividends when you successfully manage:
- Your first paycheck
- A credit card
- Car payments
- College expenses
And that’s something worth talking about.
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