Celebrating Financial Literacy Month
In NFTE’s Exploring Careers program for middle and high school, students learn more than how to choose a career; they also learn the key principles of financial literacy to empower them to be money smart throughout their lives, starting now. In celebration of Financial Literacy Month, here are five tips you can share with your kids to help them on their way to a money-smart future.
1: There’s a difference between gross pay and take-home pay.
Many of us relate to that coming-of-age moment when you receive your first paycheck, and you discover that it’s significantly lower than what you were expecting. Prepare your children by reviewing a paycheck with them. Explain the payroll deductions and their functions. Understanding deductions and take-home pay is essential to creating realistic budgets and financial planning.
2: Everybody needs a budget.
It can be tempting for young people to earmark the entirety of their take-home pay for fun with friends, cool video games, and other “wants.” But it’s important to help them understand that “needs” must be paid for before “wants.” Explain that “needs” might include rent, cell phone, groceries, and transportation. And the cost of “needs” may vary, especially if unexpected expenses like a car repair arise. Therefore, it’s important to put aside some money with every paycheck for an emergency fund as well as savings that can be used for something meaningful in the future, such as higher education. Help young people to save by encouraging them to put a certain amount of each paycheck or monetary gift into a savings account, preferably one that accrues interest.
3: Shop around when choosing interest-based accounts.
When deciding where to put your money into checking and savings accounts at a bank or credit union, take some time to compare the terms. Not all accounts are created equal. Some might offer better interest rates, cash back, travel points, or customer service. They might also charge fees. Check the fine print to decide which accounts are best for you, and how you can earn money with features like compound interest. Many banks and credit unions offer student accounts with zero fees, so be sure to consider those as well.
4: Take steps to have a healthy credit score right from the start.
Credit cards, loans, and mortgages are all interest-based accounts; you pay interest on the money you borrow. Loan rates and terms vary, and it is common to get over your head with debt due to the interest and required fees. This activity, along with other financial history such as income and whether bills are paid on time, creates a credit score that goes on a credit report. Lenders use this score to decide whether to loan you more money. Many lenders have student accounts or accounts that can be opened with a parent or adult co-borrower. Consider building credit by opening such an account but be sure to request low available credit (like $200 or an amount that’s less than your savings balance) so debt can’t build up. Although a low credit score can be improved over time, it’s best to manage credit wisely right from the start so that you can reap the benefits of lower-interest loans if you need them.
5: Expect to pay a price for your career.
Many young people might seek loans in order to pursue additional training or higher education. It’s important to determine what this may cost when choosing a career. The thought of becoming a doctor or lawyer can be appealing, but how much time and money must be invested to become qualified for this career? Young people should investigate what it takes to train and learn for careers they are considering, then compare this to the income they can expect to earn. This can help them prepare for options such as scholarships and plan how to earn enough money and budget sensibly so that they can afford their “needs” and “wants” while getting their education.
NFTE’s students learn and practice these principles as they dive into the options for their future in our Exploring Careers program. Would you like to learn more about NFTE and Exploring Careers? Contact us today!