Recently the Hawaii State legislature killed a bill that would have required a financial literacy class for Hawaii public high school students to take before graduating. Financial education is a key life skill that most adults will say never got taught to them. A lack of financial education for students often leads to an uneducated population of adults having to learn about money the hard way.
To compound the situation, many parents shy away from talking to their children about finances, often because they either lack basic financial knowledge themselves or are embarrassed by their current financial situation.
Here are 7 key financial skills every high school student should know prior to leaving school. Even if you graduated and haven't mastered these skills, it is not too late to start.
1. Create a budget
A budget is your plan for how to spend your money. It factors in your income you earn and expenses. Budgets are the key to succeeding financially. If you know how much you can safely spend and save each month, you can easily avoid going into major debt or fall short meeting any long-term goals like a wedding, children, or retirement.
Before leaving school, every student should learn how to set up a budget for themselves. Whether you use the 50-30-20 method, or the cash envelope system whereby you separate all your cash for the month into separate envelopes, or even the zero-based budget that leaves no money at the end of the month, budgeting is an important skill that many adults don't do.
2. Understand the cost of college
For many, college is the next logical step after graduation. But if you were like me back then, you are not thinking about the cost of college, instead you are focused on the college experience. College tuition prices are a lot higher today compared with two decades ago. Many students assume that the only way to pay for college (if your parents never saved for you) is through student loans.
There are many other funding options available that don't require repayment like student loans do. These include, grants, scholarships (available even for those don't get perfect grades), and work-study options.
Considering alternative options to student loans will allow you to go to school without racking up tons of student debt. Student loan debt will hang over a graduate, often times dictating what type of career they go after and their lifestyle post graduation.
But if you need to take out a student loan, it's generally preferable to apply for federal loans rather than private ones. Federal loans offer borrowers lower interest rates, flexible loan repayment plans, and loan forgiveness programs.
3. Balancing your checking account
Balancing your checking account through the use of an online or mobile banking app is an important money-management tool. Online or mobile banking gives you the ability to manage the money in your. bank account using a computer or mobile device. With this tool, there’s no need to visit a bank branch, and you can do all of your banking tasks when it’s most convenient for you, even outside of normal banking hours.
Keeping track of your money goes hand in hand with budgeting. You can use the app to keep track of your withdrawals and deposits and also reconcile each transaction. Knowing and understanding where your money goes and making sure that your account is never overdrawn will protect your finances (your credit) and will deter potential fraud.
4. Investing
Investing can be intimidating if you do not have at least a basic understanding of how the stock market works and how to choose and invest in stocks. Take the time to learn basic investing principles in high school, such as asset allocation, diversification, and portfolio rebalancing. This will put you ahead of the curve and could lead to better investing strategies in the future which could jump start your way to retirement.
5. How to build your credit
Having good credit will enable you to borrow money for things like a car, college, or even a house. You credit score is dependent on a variety of factors. One of those factors is how long you’ve been managing credit. The length of time you’ve had a credit card, for example, can positively impact your credit score. By building credit now, you’ll begin to show potential lenders that you’re a responsible borrower.
Other factors, like your payment history, the different types of credit you have (loans vs. credit cards, etc.), and your credit usage (the amount of money you owe vs. the amount of credit you have available), help determine your credit score, as well. By starting now, you can develop good credit habits to ensure you will have a strong score which will save you money and headache later in life.
6. Managing your credit cards
Many college students are targeted with credit card offers, and chances are high that they lack the knowledge on how to use credit cards successfully. When you're in college you often view credit cards as extra money instead of as a tool. That can be dangerous because it will rack up debt and make it more difficult to get approved for other types of loans.
Credit cards can be viewed as good or bad depending on how you use them. They are a downfall of most college students. A recent study by EverFi showed that over 36% of college students had over $1,000 in credit card debt.
7. Plan for an emergency
Financially, you are the only person you can trust in an emergency. This isn’t to say that you don’t have people in your life who would be happy to help you out in a jam – but having an emergency fund is the best way to know that you’ll be alright if disaster strikes. That way, if you lose your job, your car breaks down, your cat needs to go to the vet or any other emergency happens, you can pay for it without going into credit card debt. Start with an emergency fund of $1,000, and try to build up to at least three to six months of living expenses.
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