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Saturday, August 19, 2023

Top Financial Planning Advice for High School Students

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Graduating from high school is an important milestone in the life of your child. There are plenty of options to choose from once children graduate. They may decide to continue their education in the fall, start working full time, or take a gap year and think about what they would like to do next. 

If you are willing to help them make smart financial moves later in life and help to avoid situations like ‘I need 100 dollars now’ you may want to talk with them to help them get prepared for real life. Here are 5 tips on personal financial planning for high school students to assist them in their financial success.

The Impact of Financial Literacy on Monetary Well-Being

According to the 2022 report “How Financial Literacy Varies among U.S. Students” by the TIAA Institute, many Americans function with a poor level of financial literacy—a consistent finding over the first six years of the P-Fin Index. On average, U.S. respondents correctly answered only 50% of the survey questions. Eighteen percent correctly answered over 75% of the index questions, while 23% correctly answered 25% or fewer of the questions.

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Financial literacy tends to be low within each of the five generations comprising the U.S. adult population, but particularly so among those in early adulthood. The average percentage of P-Fin
Index questions answered correctly in 2022 by Gen Z and Gen Y is 42% and 46%, respectively. The analogous figure among baby boomers and the Silent Generation is 54% for each. It has become clear that greater financial literacy tends to translate into higher financial well-being and lower financial literacy is generally associated with lower financial well-being.
For example, compared to those with very high levels of financial literacy, those with very low levels are 6 times more likely to have difficulty making ends meet, 3 times more likely to be debt constrained, 3 times more likely to be unable to cope with a $2,000 financial shock, 5 times more likely to lack emergency savings sufficient to cover one month of living expenses, and 4 times more likely to spend ten hours or more per week coping with personal finance problems.

5 Financial Planning Tips

1. Create a Budget

The very first step that can help your child get prepared for college and adult life is to establish a budget. This is a helpful financial planning process that can teach your kid monetary responsibility. Budgeting will help with keeping track of expenses and taking full control of personal finances.
Several budgeting exercises may be conducted to make young students understand how to spend their money wisely. You may give your children an allowance and set some financial needs they should cover themselves. For instance, they may pay for their lunches, save for small purchases, or cover entertainment costs.

2. Set Financial Goals

Another important tip is to tell your children to prioritize spending. It’s not enough to make a monthly budget, and even sticking to it on a regular basis won’t do all the magic. It’s crucial to understand the difference between needs and wants.
This is what every student should learn in order to improve their spending habits. Your aim is to encourage your kids to set monetary goals. For example, your kid may start saving some funds to purchase their first car or set aside money to save for a down payment for a house. What is financial planning? This is a special approach with certain steps to meet your life goals

3. Build Credit

One of the most important steps in financial planning is to establish and build your credit history. High school students may know little about credit but if they understand the importance of making on-time regular payments for a house or a car, they won’t skip them. Teach your child to build credit early in their life. It may be more challenging and time-consuming to repair it later if they fail to return some debt on time.
A credit score is one of the most significant factors that define the client’s creditworthiness, so before your child decides to own a credit card or take out a personal loan, he or she should realize that the borrower takes full responsibility for the debt repayment. Otherwise, the credit rating can suffer and get damaged which will inevitably lead to higher interest rates on lending solutions.

4. Make an Emergency Fund

Teach your children that life is full of unforeseen expenses. It happens all the time – medical bills should be covered, urgent car repair costs should be financed, etc. You won’t be able to be accountable for all of these costs as a parent forever.
Setting an emergency fund will protect your kids from the stress and pressure of unpredicted bills and expenditures. The earlier they start setting aside some cash into this fund, the better. You may offer them to begin making these contributions as soon as they start work.

5. Consider Getting Insurance

Once your children graduate and start living on their own, they may want to consider getting car insurance and health insurance. You as a parent should explain that a proper insurance plan can protect them from emergencies. Health insurance may be obtained right after graduation from high school. 

Once they think about getting their first auto, it’s essential to buy car insurance as well. At some point, you will face restrictions and limits on your kids being covered by your insurance. So, it’s time to think about this question.

In Conclusion

Once the high school student graduates, he or she will face various decisions. If your child decides to go to college, tuition costs might pile up. So, the right financial planning may help students overcome money-related issues. Being smart with money means one can make savvy financial decisions. This way, children will get ready for adult life. Parents should teach their children how to avoid pitfalls and improve their financial behavior.

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