We are so close to a glorious summer break, I can almost taste it (yay!). Kids will be home, teachers will be off, and the sun will be out. Summer’s arrival also means many teens, grads, and college students will be starting up their summer jobs. Whether they’re nannying, mowing lawns, spinning pies at the local pizza joint, job shadowing a journeyman electrician, or interning at a law firm, the goal is to gain real life job experience, and of course, make whatever money they can before school starts up again in the fall.
This brings us to an important point. When we think about summer, we usually think about sunscreen, vacations, beach trips, and barbecues. But there’s something we are missing, and it’s… money. Have you equipped your teen with the financial know-how they need to succeed in the real world (and avoid major financial pit falls)? Many parents assume their kids are learning personal finance at high school (or college), but unfortunately, many schools assume the students are learning it at home! It’s a crucial topic that all too often falls through the cracks. And, guess who loses?
As your teen embarks on his/her summer job, you can use this newsletter as a launch pad to build their financial literacy. It’s the perfect time! The principles of wise financial management aren’t that tough to master. You simply need to know the basics and abide by the disciplines and key principles. It pays to emphasize the importance of financial literacy since the stakes are so high. So, a helpful starting approach is to teach them to avoid these eight most common financial mistakes:
- failure to set goals and plan/save for major purchases (instead, many load their credit cards with debt, making their items that much more expensive)
- failure to set aside an emergency fund for unforeseen expenses (which can lead to panic, more debt, or asking parents to bail them out)
- spending more than you earn and failing to budget and monitor expenses (out of all of them, this is probably a top learning priority)
- incurring too much debt, including student loans and excessive credit card usage (this can be a slippery slope, and can make buying a new car or home one day very difficult/nearly impossible/far more expensive)
- incurring significant fixed expenses relative to your income that can’t be reduced in difficult economic times (e.g., spending too much on housing, cars, etc.)
- impulse buying and lack of value consciousness when shopping (make, and stick to, your shopping list beforehand! Last-minute, unnecessary purchases do not bode well for your finances.)
- failure to begin saving and investing for the future as soon as possible (and missing out on the compounding of money over long periods of time)
- failure to appreciate how the little things can add up (e.g., eating out versus in, paying up for name brands, owning a dog or cat)
Number 6 is an especially common pitfall among young people when working a summer job. They aren’t used to having a surplus of money in their checking account, so they go on spending sprees and end up saving much less than they could. A good rule to learn, especially at this time of life, is save first, spend on “needs” second, and IF there is money left over, enjoy some “wants.”
These financial pitfalls don’t just apply to teens and young people working their summer job…they apply to everyone! If you are a parent or a teacher, you, too, should review how you’re doing in each of these areas. Are you sticking to your budget? Taking on too much debt? Saving less than you could be? When you practice these same financial best practices, you’ll be even better equipped to talk about financial wellness with the young people in your life. Remember, they’re watching you, so be sure to “walk the talk!” If we can successfully avoid these traps, we’ll ALL be in better financial shape!
Now get out there, get to working, and get to saving! The world (and your bank account) is your oyster.
Oh, and have an amazing summer, too!