Posted on 4/30/2014
Though most children form lifelong attitudes about money by the time they finish fifth grade, research shows that only one-third of parents discuss financial issues with their children. Below are 10 personal finance principles that every young person should know.
1. Determine wants vs needs. It is natural to want more than we need, and peer pressure makes us even more susceptible to frivolous purchases. Practice setting personal financial limits now, and carry that good habit into adulthood.
2. Consider consequences. Unless a purchase is critical, think carefully before buying. When in doubt, wait a day or two. If you still want the item after waiting, then you are less likely to have regrets later. Most importantly, never use shopping as personal therapy.
3. Remember that the government gets part of your pay. Once you start working, you will start paying taxes. "Gross pay" refers to a total pay before taxes, and "net pay" refers to what you actually recieve. Base your budgeting and spending on net pay, and do not assume that income taxes will be returned to you because you are a student. The amount returned is dependent on total pay earned from all jobs throughout the year.
4. Pay yourself first. For youth, time is your most valuable asset. Start saving now for large purchases later and for your eventual retirement. Deferred gratification is a sign of maturity.
5. Make a budget. Think of a budget as a spending plan, not as a burden. Prioritizing values simplifies planning. When determining your budget, first plan for your needs, then determine what is left over for your wants. A common mistake teens make is buying a relatively expensive automobile that becomes too burdensome to maintain.
6. Use credit wisely. Never charge clothes, food, gas, etc., on a credit card if you cannot pay off all of it at the end of the month. The way you handle credit affects your credit rating, which you need to rent an apartment or buy a car. Your credit rating may even be part of a job screening process. Credit reports also determine the amount charged for utility deposits and the rate of interest charged on loans.
7. Treat your money like business. Keep records, balance your checkbook, and read your statement thorougly. Be systematic about checking accounts and credit usage. Take precautions to protect your Social Security number. If you find a mistake, take action immediately. The sooner you tackle a problem, the more likely you will have a successful resolution.
8. Don't forget about interest. interest is the amount paid for the use of someone else's money. When you deposit savings into an account, your bank pays interest; when you borrow, you pay interest to the lender. Seek a high interest rate for your savings account, and a low rate when borrowing. The interest you pay on a loan can significantly add to the overall price of your purchase.
9. Protect yourself. Purchase insurance to protect yourself from substantial financial loss. To determine your insurance needs, consider the cost of insurance vs potential loss. Never expect 100 percent replacement value, due to depreciation and deductibles. Remember that multiple insurance claims can increase premiums.
10. Ask for help. Successful personal financial management is a skill sometimes learned through mistakes. Ask a parent, banker, teacher or trusted friend for advice or help if you begin to struggle. It may take effort and scarifice to regain stability, but it can be done.
This information is provided with the understanding that the Association is not engaged in rendering specific legal, accounting or other professional services. If specific expert assistance is required, the services of a prefessional should be sought. Provided as a public service by the Indiana Bankers Association.
This information is provided by the Indiana Bankers Association.