Teaching financial literacy to kids from an early age can yield lifelong benefits. Understanding how money works, how to manage it effectively, and how to make informed financial decisions can significantly impact a young person’s future.
While a growing number of high schools require students to take a course in economics or personal finance to graduate, many young people leave high school, and even college, without a solid understanding of personal finance. This can leave them vulnerable to debt, poor financial decisions, and missed opportunities for building wealth.
Below, we’ll explore the importance of financial literacy for students, key topics they should understand, and resources available to help both students and parents build financial knowledge.
Key Points
• Financial literacy empowers students to make informed money management decisions.
• Budgeting helps balance income and expenses, ensuring financial stability.
• Building credit through responsible use of credit cards and understanding credit scores is essential.
• Managing debt effectively and differentiating between good and bad debt can help prevent financial stress.
• Basic investing concepts and understanding taxes prepare students for long-term financial success.
Why Financial Literacy Is Important for Students
Financial literacy refers to the knowledge and skills needed to make informed decisions about managing money. For students, financial literacy is particularly important because they are at a pivotal stage in life where financial habits and decisions can have long-term effects. According to a recent survey by the National Financial Educators Council, lack of money knowledge cost the average American adult $1,015 in 2024.
Many students also face financial responsibilities early in life, such as managing a budget for college expenses, opening their first bank account, applying for student loans, or using credit cards. Without financial literacy, they may struggle with debt, overspending, poor credit scores, and missed opportunities to build wealth.
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Key Topics Students Should Understand
One challenge of navigating financial education for students is deciding what’s most important for them to learn. Breaking personal finance down into smaller subtopics can make teaching financial literacy easier.
Basic Finance Concepts
At the core of financial literacy are fundamental finance concepts that students will want to understand early on. These include:
• Income: Understanding different sources of income (e.g., wages, investments, side hustles).
• Expenses: Differentiating between necessary expenses (rent, utilities, groceries, transportation) and nonessential, or discretionary, expenses (dining out, entertainment, clothing not needed for work).
• Savings: Learning the importance of saving for emergencies, future goals, and retirement.
Teaching students these basics helps them see the big picture of how money flows in and out of their lives.
Budgeting
A budget is a plan for spending money each month. On one side, you have your income and any other earnings, and on the other, you have the money that you spend and save/invest for the future. These two sides should balance.
Key steps in budgeting for beginners include:
• Listing all sources of income (e.g., job, allowance, scholarships)
• Listing all expenses (e.g., rent, groceries, transportation)
• Separating needs from wants
• Adjusting spending based on available income and savings goals
• Using budgeting apps to monitor and adjust spending habits
Teaching students how to budget prepares them to manage their money effectively and avoid financial stress.
Bank Accounts and Terms
Banking is another important concept to tackle when discussing financial education for students. Understanding how bank accounts work is essential for managing money. It’s key for students to understand these concepts and terms:
• Checking account: A checking account is designed for everyday money management. It gives you a place to deposit your paychecks and any other earnings, and comes with checks and a debit card, making it easy to access your money.
• Savings account: A savings account is used for storing money you don’t need right away and earning interest. Some banks limit withdrawals from savings accounts to six per month.
• Interest rate: Interest is the return you earn for putting your savings in a bank, typically expressed as a percentage of the principal (original) amount. Interest is also the cost of borrowing money.
• Overdraft fee: This is a charge for withdrawing more money than is available in an account.
Encouraging students to open and manage their own bank accounts helps them learn accountability and develop positive financial habits.
Recommended: How to Open a Bank Account
Credit Scores
A credit score is a numerical representation of how likely you are to repay a loan on time, based on your credit history. It’s important for students to understand:
• How credit scores are calculated: Credit scoring models look at your payment history, how much of your available credit you are using, recent credit applications, and length of your credit history, among other factors.
• Importance of a good credit score: A higher score makes it easier to get approved for credit cards, housing, and loans. It also gives you access to better rates and terms on credit cards and loans.
• How to build credit: You can start building credit by becoming an authorized user on a parent’s credit card, getting your own credit card and using it responsibly, and avoiding too many new credit inquiries.
Learning about credit scores early helps students avoid damaging their financial future.
Debt Management
Debt is often unavoidable, but managing it effectively is crucial. Important concepts include:
• Good debt vs. bad debt: Education loans and mortgages are often considered “good” debts because they can increase earning potential and help build wealth, while credit card debt with high interest is typically considered “bad” debt.
• Minimum payments: Paying only the minimum on credit cards increases overall debt due to interest charges.
• Debt snowball vs. avalanche method: These are strategies to pay off debt — snowball focuses on small debts first, avalanche tackles high-interest debts first.
Helping students use debt wisely, avoid racking up “bad” debt, and developing smart debt repayment plans can prevent financial stress and improve their financial future.
Basic Investing Concepts
Investing is a powerful way to build wealth over time. Students will want to understand:
• Types of investments: You can invest in stocks (ownership shares of a company), bonds (a loan to a government, agency, or company), mutual funds (where you pool your money with other investors to buy stocks, bonds, and other investments), and real estate.
• Compound returns: This refers to the returns you earn both on your initial investment and on the returns you’ve already accumulated. Compounding allows your money to grow at an increasingly faster rate.
• Risk and return: Investing comes with risk. Generally the higher the potential return, the higher the risk of loss.
• Diversification: Spreading investments across different types helps reduce overall risk.
Teaching students about investing early helps them take advantage of time and compound growth.
Taxes
Understanding how taxes work helps students avoid surprises and plan ahead. Key concepts include:
• Income tax: This is the percentage of your income you pay to the government.
• Deductions and credits: Deductions reduce your total amount of taxable income, while credits reduce the total tax due (which is more valuable than a deduction).
• Filing requirements: Students need to learn how to file a tax return and what forms to use.
Understanding taxes helps students avoid penalties and maximize their refunds.
Mortgages
While mortgages may seem far off for students, understanding them early helps prepare for future homeownership. It’s important for students to know about:
• Down payments: This is the upfront payment required when buying a home and is typically a percentage of a home’s purchase price. The more you put down on a home, the less you need to borrow — and the more money you save on interest over the life of the loan.
• Interest rates: When you have a mortgage, you pay interest on the amount of the loan that you haven’t yet repaid to your lender. Your interest rate affects the overall cost of a mortgage.
• Fixed vs. adjustable rates: Fixed rates remain constant over the life of the loan; adjustable rates can fluctuate based on market conditions.
Basic knowledge of mortgages helps students make better decisions about housing in the future.
Recommended: Savings Goal Calculator
Loans and Credit Cards
Student loans, car loans, mortgages, credit cards — they’re all ways that students can borrow money but they don’t all work the same way. So it’s a good idea for students to understand concepts like:
• Revolving vs. installment debt Revolving debt, like credit cards, allows you to borrow and repay repeatedly within a credit limit. Installment debt, like a car loan or mortgage, is repaid in fixed payments over a set period (or term).
• Credit limit: A credit limit is the maximum amount of money you can borrow or spend on a credit card or line of credit at any given time, set by the lender.
• Payment terms: Payment terms include the minimum amount due each month on a credit card or loan and the date it needs to be paid by. Paying on time avoids late fees and damage to credit.
Teaching responsible borrowing habits prevents students from falling into debt traps.
How Parents Can Get Involved
Teaching financial literacy isn’t limited to school; students can also learn about money at home with their parents’ help.
Some of the best ways to teach students about finance are through hands-on activities. For example, parents could:
• Help their child open a student bank account.
• Pay kids an allowance and walk them through how to create a monthly budget.
• Encourage students to set financial goals and save money toward them.
• Offer to match savings by giving a child a percentage of what they save to encourage consistent saving.
• Expose students to situations that require financial decision-making, like planning a family vacation or completing a weekly grocery shopping trip.
Parents can also teach by example if they practice healthy money habits. That includes things like making or reviewing the family budget, paying bills on time, resisting impulse purchases when shopping, and saving money regularly.
Tools to Help Teach Financial Literacy
Online tools, including games or interactive websites, can help with teaching financial literacy for kids. Using these tools helps students learn through real-life examples and interactive experiences. Here are a few resources to check out.
• Consumer Financial Protection Bureau (CFPB): The CFPB offers plenty of financial education resources for kids, parents and teachers, including links to interactive games, articles, and detailed lesson plans covering core finance topics.
• Banzai: This free financial education platform teaches real-world finance lessons and practical skills and can be used by teachers as well as students of all ages.
• Hands On Banking: This site offers access to free financial literacy content in both English and Spanish, with courses for elementary, middle, and high school students. There are also separate sections for educators, as well as parents.
• CashCourse: A crash course in financial literacy for students, access is free for students, educators, and anyone else who’s interested in expanding their money knowledge.
• FinAid: This is a hub for information about paying for college, with information on student loans, grants, scholarships, and work-study programs, along with calculators that can help students estimate the cost of earning a degree.
• FINRA Investor Education Foundation: This site is packed with resources to help students learn about everything from building emergency savings and buying a car to investing in the market.
• Bank and credit union programs: Many banks and other financial institutions offer free, comprehensive, and often beginner-friendly financial literacy programs.
The Takeaway
Financial literacy is a critical skill that empowers young people to make informed decisions about their money. When students understand financial basics (like budgeting, saving, investing, debt management, and taxes), they’re generally better prepared to navigate adulthood, avoid common financial mistakes, and create a stable financial future.
If students aren’t learning financial literacy in school, parents can step in to help teach essential lessons about money at home. Parents can also lead by example. Showing your kids how you achieve your goals through budgeting, saving, and investing can give them the knowledge and confidence to do the same.
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