Financial Skills Every High School Student Should Develop to Succeed
One of the most important aspects that cannot be overlooked is the importance of financial skills for high school students. In today’s rapidly changing world, equipping students with the knowledge and skills necessary to manage their personal finances is key to their future success.
Developing financial literacy not only empowers students to make informed decisions about money but also allows them to take control of their financial well-being. I invite you to consider the benefits of developing financial skills and delve into the key areas that high school students should focus on to lay a solid foundation of financial literacy.
Budgeting and Money Management
I believe that budgeting and money management skills are fundamental to financial literacy for high school students. Understanding the concepts of income, expenses, and savings is the first step toward gaining control of personal finances.
Students need to learn how to distinguish between different sources of income, such as scholarships, part-time jobs, or financial aid, and how to allocate their money effectively.
Creating a Personal Budget
Creating a personal budget is extremely valuable for financial planning, at least for me. It involves identifying all sources of income and dividing expenses into fixed (e.g., rent, utilities) and variable (e.g., entertainment, dining out).
By setting limits for each expense category, students can develop responsible spending habits and ensure that their spending is in line with their financial goals.
Track Expenses and Manage Cash Flow
In my experience, expense tracking and cash flow management go hand in hand with budgeting. Students should be encouraged to keep records of their expenses and review them regularly to understand how they are spending money.
This practice allows them to make informed decisions about where to cut back, prioritize savings, or identify potential areas for improvement.
Setting Financial Goals
I also pay a lot of attention to setting financial goals. This is an important aspect of budgeting and money management. By setting short-term and long-term goals, students can develop a sense of purpose and direction in their financial decisions.
Whether it’s saving for college, a car, or future investments, having clear financial goals provides motivation and helps students stay focused on their desired outcomes.
Banking and Basic Financial Services
Okay, I see you already know a little bit about financial skills. Now let’s look at banking and basic financial services. What other aspects do you believe are important for improving financial literacy among high school students?
It is important that students understand the benefits and practical aspects of opening a bank account. Opening a bank account provides a safe and convenient place to store and manage money, as well as access to a variety of financial services.
Understanding Different Types of Bank Accounts
Students should be familiar with the different types of bank accounts, such as savings accounts and checking accounts. Understanding the features, benefits, and potential fees associated with each type of account enables learners to make informed decisions when choosing the most appropriate account for their needs.
Basic Knowledge of Checks, Debit Cards, and ATM Usage
It is imperative that students acquire a basic understanding of checks, debit cards, and ATMs. The ability to write checks correctly, understand the purpose and functionality of debit cards, and use ATMs confidently are important skills for managing personal finances.
Online and Mobile Banking
In today’s digital age, it is also important for students to understand the concept of online and mobile banking. They need to understand how to access their accounts online, navigate bank websites or mobile apps, and conduct basic financial transactions electronically.
This knowledge will allow them to conveniently manage their finances, keep track of their balances, and make online payments securely.
Saving and Investing
Saving allows individuals to build financial security and achieve their goals. It provides a safety net for unexpected expenses and creates opportunities for future investments. By cultivating a saving mindset early on, students develop a habit that will serve them well throughout their lives.
Next, it’s important to differentiate between short-term and long-term savings goals. Short-term goals typically involve saving for immediate needs or wants, such as purchasing a new gadget or going on a trip.
Long-term goals, on the other hand, may include saving for higher education, a down payment on a house, or retirement. By understanding the distinction between these two types of goals, high school students can allocate their resources accordingly and plan for the future.
Students should learn about common investment vehicles such as stocks, bonds, and mutual funds. Understanding the basic characteristics of these investments, including potential risks and returns, enables students to make informed decisions when it comes to growing their wealth over time.
Understanding Credit and Debt
I always recommend that high school students get at least a general understanding of credit cards, loans, and interest rates. They should understand how credit cards work, including concepts such as credit limits, interest rates, and repayment terms.
Knowing about the different types of loans, such as personal loans or student loans, and the consequences of borrowing money is crucial to making informed financial decisions.
Responsible borrowing is a vital skill to develop. Students should be aware of the potential pitfalls of over-indebtedness and the importance of avoiding debt traps.
They should understand the consequences of late or missed payments, as well as the impact of high-interest rates on long-term financial stability. Emphasizing responsible borrowing from an early stage can help students build a solid foundation for their financial future.
Building and Maintaining a Good Credit Score
Building and maintaining a good credit rating should not be overlooked. Students should learn the factors that affect credit scores, such as payment history, credit utilization, and length of credit history.
They also need to understand the long-term consequences of a high or low credit score, as it can affect their ability to obtain loans, secure favorable interest rates, or even affect employment opportunities.
Managing Student Loans
Student credit management is especially important for high school students who are preparing to enter higher education. Students need to understand the different types of student loans available, including federal and private loans, as well as the terms and conditions associated with them.
Knowing about repayment options, grace periods, and strategies to minimize student loan debt enables students to make informed decisions about financing their education.
Insurance and Risk Management
High school students should understand the purpose of insurance, which is to protect against financial loss in the event of unforeseen circumstances or accidents. Knowledge of the coverage, deductibles, and premiums associated with different insurance policies helps students make informed decisions when choosing insurance coverage that meets their needs.
Students should realize that life is full of uncertainties and unexpected events can occur. At conferences, I often encourage high school students to learn about the importance of planning for emergencies and having financial reserves to cover unexpected expenses.
Understanding the concept of risk management helps students develop a proactive approach to mitigating potential risks and protecting their financial well-being.
Introduction to Taxes
My goal is for high school students to learn about the types of income that can be taxed, such as wages, dividends, and interest. They also need to understand the concept of a tax bracket and how tax rates can vary depending on income levels.
Be sure to review all tax filing requirements. This includes the deadlines for filing tax returns and the consequences of not meeting those deadlines.
Understanding W-4 Forms and Deductions
Students should learn about the purpose of the W-4 form, which is used to determine the amount of tax withheld from their paycheck by their employer.
The W-4 form is a document that employees in the United States fill out to inform their employers about their tax withholding preferences. It includes information such as the employee’s filing status, number of dependents, and any additional withholdings they wish to make.
The purpose of the W-4 form is to ensure that the correct amount of federal income tax is withheld from the employee’s paycheck based on their individual circumstances. By accurately completing the W-4 form, employees can avoid over- or under-withholding taxes and ensure that they meet their tax obligations throughout the year.
Responsibilities as a Taxpayer
Students also need to understand the consequences of tax evasion or fraud and the importance of honesty and integrity in tax dealings. Tax evasion refers to the illegal act of intentionally evading or avoiding paying taxes that are legally owed. Here are some potential consequences:
- Financial Penalties: Tax evaders may face substantial financial penalties, including fines and interest on unpaid taxes. These penalties can accumulate over time and significantly increase the amount owed.
- Legal Action: Tax evasion is a criminal offense in many jurisdictions. Individuals found guilty of tax evasion may face criminal charges, which can result in imprisonment or probation, depending on the severity of the offense.
- Reputation and Professional Consequences: Engaging in tax evasion or fraud can have long-lasting negative effects on an individual’s reputation and professional standing. It can damage trust and credibility, making it difficult to secure future employment or business opportunities.
- Audits and Investigations: Suspected cases of tax evasion or fraud can trigger audits or investigations by tax authorities. These processes can be time-consuming, intrusive, and may require extensive documentation and evidence to prove compliance.
- Civil Lawsuits: Tax authorities may initiate civil lawsuits to recover unpaid taxes, potentially leading to asset seizures or liens against properties or bank accounts.
- International Consequences: Tax evasion can have international implications, as many countries now actively cooperate to combat tax fraud. International agreements and initiatives aim to share information and enforce tax compliance across borders, increasing the risk of detection and penalties for those involved in cross-border tax evasion schemes.
Consumer Rights and Financial Fraud Awareness
I wish everyone to be familiar with consumer protection agencies. These organizations can assist individuals if they encounter unfair or deceptive business practices.
Identifying and preventing financial fraud and scams is another crucial skill. High school students should learn about common types of financial fraud. Common types of financial fraud include:
- Identity theft
- Phishing scams
- Investment fraud
- Credit card fraud
- Bank fraud
- Insurance fraud
- Mortgage fraud
- Ponzi schemes
- Wire fraud
- Charity scams
By recognizing the warning signs and understanding preventive measures, you can protect yourself from falling victim to financial scams.
Financial Planning for College and Beyond
Are you aware of the potential costs associated with tuition, books, and housing? By learning the importance of saving early on, you can start building a college fund to ease the financial burden when the time comes.
Another important step is to look for financial aid and scholarships. It is very important to learn financial planning for college. Key financial planning tips include
- Start saving early and consistently.
- Look for and apply for scholarships and financial aid.
- Consider attending a community college or cheaper alternatives for the first two years.
- Create a budget and track your expenses to manage your finances effectively.
- Minimize unnecessary expenses and prioritize necessary expenses.
- Explore part-time or student employment opportunities to generate additional income.
- Consider living options that fit your budget, such as shared housing or off-campus accommodation.
- Compare and understand the terms of student loans before taking out a loan.
- Look for ways to reduce the cost of textbooks, such as buying used books or renting them.
- Contact your college’s financial aid offices or financial advisors for individualized advice and support.
Further Learning and Improvement
I recommend exploring additional resources and educational opportunities. These can include books, online courses, workshops, and seminars that delve into specific financial topics.
You can also take advantage of the experience of financial professionals and use reputable websites and blogs. Take an active part in discussions with your peers to expand your knowledge and gain practical skills.
Developing financial skills is an ongoing process. It requires continuous learning, practice, and adapting to the changing financial landscape. Prioritize financial literacy and take proactive steps to improve your financial knowledge.
About the Author
Marguerite Roza, Ph.D., is a renowned expert in education finance policy and practice. She currently holds the position of Research Professor and Director of the Edunomics Lab, a research center focused on exploring and modeling education finance policy and its implications. Her work covers a wide range of topics, including state and school district finance policy, financial equity, pensions, compensation, higher education finance, and more.