May 06, 2018
As they begin their transition into adulthood, ensuring that students have a strong understanding of finances is vital to their success beyond high school and throughout their lives.
Whether starting their freshman year of college, moving straight into their career, or taking a gap year, it’s important for students to have strong financial literacy as they become independent adults. In a time when more than half of Americans feel lost when creating a stable, long term financial plan and household debt in the US has reached $13.15 trillion, parents and tutors should take an active role in guaranteeing that high school students are prepared for their futures.
Don’t Depend on the Classroom
If parents are hoping that their children’s schools will fill in the gaps, they should consider otherwise. Throughout the US, only 17 states require that high school students take a personal finance class, and 45% of surveyed college students reported that they haven’t and don’t plan on enrolling in a financial course.
Though parents should encourage their children to take a financial course (whether in college or not), tutors can help students improve their financial literacy as they enter the next stage of their lives.
What Do Students Need to Know Now?
While it can seem overwhelming at first, students can begin their financial education by learning about concepts that are already or will soon be relevant to them.
Considering that student loan debt in the US has reached nearly $1.5 trillion and the average loan debt for a class of 2016 student was over $37,000, it’s vital that students have a strong grasp of their loans. Tutors should review the type of loan their student is considering – federal, state, or private – and help them understand details like payment due dates, interest rates, and penalties.
Just this year, credit card debt in the US surpassed $1 trillion. Though several laws have been put into place to protect college students from credit card companies, young adults are still an easy target when it comes to collecting debt. Students should go over all aspects of credit cards with their tutor, including credit scores, interest rates, statements and payments, and annual fees.
A student should understand that even if they don’t have a full time position, tax day will still come around. Tutors can help students navigate taxes by explaining documents like W2s and 1089-Ts, and in general how to file taxes. Even if their parents currently file for them, students should feel empowered to eventually do it themselves.
At 18 years old, this may be the furthest thing on a student’s mind. Still, tutors should stress the importance of saving early on. Explaining how retirement investing works is an easy way to motivate students to begin investing in their future. Here is a guide that can help encourage your student to get started on saving.
A recent survey found that 59% of Americans don’t follow a budget. Learning how to allocate money properly as a student will help them end up in a stronger financial state later on. By reviewing the above points, as well as monthly expenses (rent, utilities, transportation, groceries, emergency funds, etc.), tutors can help students create an effective budget that also affords them room for the non-essentials (like avocado toast).
Next Level Literacy
Once students feel that they have a grasp on the above, tutors should help them continue their financial education by moving on to more advanced concepts. Understanding stocks, portfolios, investment plans, insurance, car payments and leases, retirement plans, and mortgages are just some of the concepts that students will need to understand in order to continuously improve their financial situation.
The earlier a student feels confident in their financial journey, the better. Improving a student’s financial literacy will not only allow them to feel empowered, but will help ensure they make thoughtful, informed financial decisions later on in life.