We’re used to seeing algebra and social studies on a high school schedule. But a class in personal finance? Not so much.
Only 17 states require high school students to take a personal finance class, according to the Council for Economic Education.
But knowing how to manage money is essential for life after high school — especially if you plan on taking on debt to pay for college. If you’re not lucky enough to learn about personal finance from your school, here are five lessons you can master before graduation.
1. Creating and following a budget
Even if you’re not making money yet, you should understand how to track spending and saving.
“Before heading off to college you should know that a budget will be a must, since you then will have expenses of your own,” advised David Bakke, a personal finance expert at Money Crashers. “It’s a great way to understand where your money goes.”
Thanks to expense-tracking apps like Mint and Digit, it’s easy to keep an eye on your cash flow. Even if you don’t have much money as a high schooler, you can still learn the fundamentals of budgeting. Plus, you’ll start exercising self-discipline when it comes to cash.
“For high schoolers, there are a lot of important lessons worth learning, but I would have to say one of the most important is understanding the difference between needs and wants,” said Bakke.
“This concept can be tough — even for adults — but it’s absolutely crucial, because it lays the foundation for smart spending and saving habits, as well as pretty much any sort of budgeting.”
To get started, keep track of how much money you have coming in and going out. Set a goal for how much you want to spend and save on a weekly or monthly basis. If you’re having trouble with impulse shopping, try to wait 24 hours before making a purchase. You might realize that the item you thought you needed is not so important after all.
By learning this kind of self-control early, you’ll become skilled at managing money on your own.
2. Starting a savings habit
Instead of living paycheck to paycheck, recognize how important it is to set aside money each month into a savings account.
“By high school, students should have a system for routine savings in place,” said Andrew Housser, co-CEO of Freedom Debt Relief. “They should allocate a percent — 10 percent (more if possible, less if necessary) — to save from every paycheck, whether the money comes from a part-time job or allowance from parents.”
Not only should you know how to build an emergency fund, but you can also practice saving for specific goals, such as a new laptop or spring break trip.
“It’s hard to be effective with finances without goals,” said Housser. “Write them down — ranging from buying a car to buying books to having time to participate in a sport. You’ll modify these goals throughout life [but] keeping them front of mind will help guide finances in that first year in college and throughout life.”
To get started, set a goal for how much you want to save by a specific date. Write out the math so you can see how much you need to put aside each week to get there. Then, come up with some concrete ideas for how to achieve your goal.
Maybe you need to make extra money with a part-time job, or perhaps you can reduce your spending a little bit each week. By starting early, you will develop a savings habit that will help you for years to come.
3. Taking advantage of compound interest
It’s tough to think about retirement when you haven’t even started your career yet. But if you start saving early, you could build a big nest egg over time. Since the effects of compound interest only increase with time, the earlier you can start the better.
Personal finance expert Sharon Marchisello doesn’t think high school is too early to begin saving for retirement. “Begin saving for retirement as soon as you have income,” Marchisello said. “The magic of compound interest will work in your favor. The longer you give your investments to grow, the less you will have to put aside.”
For example, let’s say you set aside $1,200 per year with a 7.00% rate of return until you were 65. If you started saving at 30, you’d end up with $165,884 in your account. But if you started saving 10 years earlier? You’d have $342,899 by the time you retired.
By understanding how powerful the effects of compound interest can be, you might be more motivated to start saving ASAP. If that’s the case, you can open an IRA online with a small minimum deposit (you’ll need to add a parent’s name to the account if you’re a minor).
Once you’ve opened an account, you can set up automatic deposits that will grow over time.
4. Figuring out your financial aid package
Perhaps one of the most confusing things about a financial aid package is that everything is called an “award.” Some parts really are an award, such as scholarships and grants. But loans are also called an award, giving the impression you don’t have to pay them back.
As any grad with student loans knows, you definitely do have to pay them back — with interest.
If nothing else, mastering financial literacy for teens must include how financial aid works. It should explain the difference between scholarships, grants, federal student loans (both subsidized and unsubsidized), and college student loans.
Plus, you need to know you’re not obligated to take out all the loans you’re offered. You could choose to take out less in student loans and pay the difference with savings or income from a part-time job.
As you apply to college, take time to learn about financial aid. When your offers come in, you’ll be able to choose the one that best suits your financial situation.
5. Picking the right student loan repayment plan
Finally, anyone planning to go to college needs to learn the ins and outs of student loan repayment. Before signing on the dotted line, learn about the different repayment plans for federal loans and private loans. Plus, you should estimate how big your monthly payment will be after graduation.
“If it looks like you or your child may need to borrow for school, understand how the loan works and look for ways to control the cost,” Joe DePaulo, co-founder of College Ave Student Loans said. “Discuss interest rates with them, and how this affects the money you borrow.”
DePaulo also recommends talking about who is responsible for the debt. “It’s never too early to discuss how your family is paying for school, including who is responsible for paying back any student loans,” he said. “It can be an emotional conversation, but it’s important for students to understand how the bills for school are being paid.”
It’s all too easy to take out more than you need and end up in debt for decades. By understanding what repayment will look like, you’ll be more prepared to deal with it. Plus, you can search for ways to minimize student loans, whether by applying for scholarships or choosing a low-cost college.
Teaching financial literacy for teens
Along with math and English, financial literacy for teens should be a priority. Without understanding how to manage money, you could have trouble taking care of yourself after graduation.
Plus, you could end up with massive student loan debt and no clear sense of how to pay it back. But by learning financial lessons early, you’ll set up yourself up for success in the years to come.
Need a student loan?Here are our top student loan lenders of 2019!
|1 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
2 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 2/1/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|4.23% – 13.23%1||Undergraduate and Graduate|
|4.20% – 11.44%2||Undergraduate, Graduate, and Parents|
|4.84% – 13.49%3||Undergraduate and Graduate|
|4.50% – 10.11%*,4||Undergraduate and Graduate|
|4.25% – 13.25%5||Undergraduate and Graduate|
|5.85% – 6.99%6||Undergraduate and Graduate|
|3.95% – 9.81%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.42%8||Undergraduate, Graduate, and Parents|