5 Things Teens Should Be Taught About Money

MSE_Martin Posts: 8,273
First Post First Anniversary Combo Breaker
Money Saving Expert
edited 20 January 2011 at 6:39PM in Budgeting & bank accounts
What's new?

I've revisited this thread as it's a gooden and turned it into a Great Hunt. Click reply to add your ideas.

Back to my original post...

I was woken this morning by Sky News. They were planning to do a piece of personal finance education in schools.

Scratching my head in dreary sleep talk, they asked me what five rules would you tell a kid about money. Hastily I came up with the following five, admittedly none are things I've not said before and don't come up in the Money Diet, but it was an interesting exercise.

After you've read my five, I'd be fascinated to read any rules you think kids can be taught. If there's some good ones, I may turn it into an article from the site 'wisdom from an older generation'....

So let me start it off:

A company's job is to try and make profit from us

The sooner people understand society is adversarial, and companies care about profits the better. That way a skeptical eye can always check, why are they doing this?, how do they gain? a good way to prevent problems?

Interest Compounds

Compound interest is very powerful. When you're saving, as you earn interest on the interest your savings grow more quickly over time. When you're borrowing, as you're charged interest on interest your debts increase rapidly. Be aware of the impact of compounds.

Always check three

I'm not a big fan of the 'shop around' mantra. Generally I believe 'think through the logic' is a better start position. However, whatever you do or buy, checking three sources to ensure you're getting a good deal is a golden rule.

Pay off debts with savings

Understanding that debt and savings are just opposite sides of the same coin is a must. If you've £1,000 of savings earning 3% after tax, that's £30 a year gained. If you've £1,000 of debt at 18% that's a cost of £180. If you paid off the debt with the savings you'd be £150 better off.

Of course, the more sophisticated understand that if the debt is cheaper than the saving you can profit, yet in most lives this is rarely the case, so pay off expensive debts with underperforming savings and you're doing well.

Bank accounts lie

Your bank account is just a snapshot of your current finances. It doesn't look at what money is due to come in and go out. It doesn't look at your spending over a year. All ii does is give you a picture of an instant in your account. You couldn't take one still frame of action from Eastenders and know the entire programme script, a bank account is just that; a 'freeze frame picture' - don't trust it. (see Budget the MoneySavingExpert.com way)

That's my starter, now over to you....

See the full Financial Education Campaign section for lots more info.

Martin Lewis, Money Saving Expert.
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.
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  • Jen_Jen_5
    Jen_Jen_5 Posts: 174 Forumite
    Budgeting, how and why to do it

    Responsible use of credit - it is acceptable to use credit but we should be telling young people how to use it sensibly, to know what an APR is, to know how HP works before they get into difficulties.

    Best Buys - why you should shop around

    Banking - how the bank works, what terms mean, how an overdraft works etc

    Debt - what are the consequences of not paying bills, how to deal with debt

    Thats my five but I dont disagree with yours.
  • Do I really need it.

    Always ask yourself do I really need it and do I need it now. If the answer is NO, it can wait until another day.
  • Do I really need it.

    Always ask yourself do I really need it and do I need it now. If the answer is NO, it can wait until another day.
    I agree with this rule whole heartly!!!!
    :cool: :cool: misters :cool: :cool:
  • isasmurf
    isasmurf Posts: 1,999
    Name Dropper First Post First Anniversary Combo Breaker
    Not sure I agree with Martin's 5, although I certainly agree they should be taught about the principle of compounding.

    I would say do shop around - on Martin's philosophy you could be checking 3 stinkers and think your getting a good deal.

    Budgeting is a must. Learning to live within your means is vital skill. They should be taught to work out their income and necessary outgoings for each of the next 6 months, and ideally year. Only then can they work out what they can spend on 'luxury' items.

    The differences between the different interest rates quote (AER, APR, etc...) and how to calculate them.

    Struggling for a fifth, maybe something about the tax system. It's essential part of life, and I'm continually surprised about how little people know about it.
  • Spendless
    Spendless Posts: 23,993
    Name Dropper First Post First Anniversary
    Get used to having your own cash and buying your own things with it.

    Several friends of mine with teenagers buying their kids Rockport shoes to go to school in at £100 a time!!

    So what happens when they leave school in a few years or become students and don;t have that sort of cash of their own. to me they will either
    a, continue to ask parents for money or
    b, start buying via credit cards.
  • deemy2004
    deemy2004 Posts: 6,201 Forumite
    1. Don't spend more than you earn. Try to save upto 50% of your earnings as a goal. - My present rate is at 65% of earnings.

    2. The value of compounding, when your young you have several decades to compound investments and savings over.

    3. Avoid debt - Somewhere in my life, I got it ingrained in me the value of earning interest rather than paying interest.

    4. Plan you investments, educate yourself and keep learning, don't take advice from others on investments without fully understanding what they are talking about !

    5. Don't lend or borrow money - Okay a bit more on 3.
  • Reaper
    Reaper Posts: 7,275
    First Anniversary First Post Photogenic
    I'd wholeheartedly agree with Deemy.

    Kids should be taught to save up to buy something they want instead of using credit. It got ingrained into me at an early age too and I'm grateful.
  • nh
    nh Posts: 567 Forumite
    1. Don't spend more than you earn. Try to save upto 50% of your earnings as a goal. - My present rate is at 65% of earnings.

    My goodness, how much do you earn?

    As for what to tell teens, you can't tell teens anything. I think the thing with money is you have to learn for yourself... usually the hard way (what self-respecting 21-year-old isn't £5k in debt at least on credit cards these days?)

    You learn a lot from your parents though. If, as a parent, you set a good example to your kids with money, that is a good start - and I would also say if you are trying to teach teens about money, try not to let them know you are trying to teach them, that is a sure way for them to switch off!
    I'm married now! Yippee!
  • nh
    nh Posts: 567 Forumite
    Rule 78 calculations and how to do them. ;)

    ...or how to avoid them altogether!
    I'm married now! Yippee!
  • nearlyrich
    nearlyrich Posts: 13,698
    First Anniversary Combo Breaker Hung up my suit! Mortgage-free Glee!
    Some good advice here already, here are some of mine................... ;)

    1 Credit card companies are not charitable organisations giving free money to people who sign on the dotted line. Pay your credit card in full every month unless you have a 0% deal and in that case put the money into a high interest savings account. Don't forget to pay it off or move it before the rate changes.

    2 Student loans, the word to watch is loans, yes you do have to pay it back even though it is at a low rate of interest it will still impact upon the amount of cash you have to spend at some time in the future.

    3 Buy one get one free, fantastic way of saving money on products that don't go off and that you use. If you don't use it before it goes off or if you never use it at all you wasted the money.

    4 £100 trainers are just the same as £30 trainers except someone in the marketing department of the expensive brand got an extra £70 of your money.

    5 If it looks too good to be true it probably is, check a bit deeper and, if you really can't find the catch grab it and run.
    Free impartial debt advice from: National Debtline or Stepchange[/CENTER]
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