7 Important Financial Lessons for Teens

Matt Eppinger, CFP®, CLU®, ChFC®, CASL®, WMCP®

Wealth Management Advisor

1.Budgeting
The importance of budgeting cannot be understated. A budget, also known as cash flow, is
arguably more important than the actual cash that you have in your bank and investment
accounts. Your cash flow is what allows you to pay for everything (or not).

Without knowing your cash flow, you could be putting yourself into a bad financial situation
and not even know it. You can only get by without knowing your cash flow for so long before
you get into financial trouble, so make the time to know the flow of your cash. Budgeting
should be something that everyone does, regardless of their financial situation.

Build an emergency fund that always stays in cash in case of emergencies!!!!

2.Understanding Debt & Credit

Debt is something, usually money, owed by one party to another. Debt is used by many
individuals and companies to make large purchases that they could not afford under other
circumstances. Unless a debt is forgiven by the lender, it must be paid back, typically with
added interest. Think of borrowing money to buy a car.

Credit is the loan that your lender provides to you. It is the money you borrow up
to the limit the lender sets. That is the maximum amount you can borrow. Debt is
the amount you owe and must pay back with interest and all fees.

The most common forms of debt are loans, including mortgages, auto loans, and personal loans, as
well as credit cards. Under the terms of a most loans, the borrower receives a set amount of money,
which they must repay in full by a certain date, which may be months or years in the future. The
terms of the loan will also stipulate the amount of interest that the borrower is required to pay,
expressed as a percentage of the loan amount. Interest compensates the lender for taking on the
risk of the loan.

Credit cards and lines of credit operate a little differently. They provide what's known as revolving
or open-end credit, with no fixed end date. The borrower is assigned a credit limit and they can use
their credit card or credit line repeatedly as long as they don't exceed that limit

Properly used, debt can be advantageous to individuals and companies alike. Few people could buy
a home without a mortgage, and many people couldn't afford a new car without an auto loan. Credit
cards can be a great convenience and even a lifesaver in emergency situations.
Debt is an important, if not essential, tool in today's economy. Businesses take on debt in order to
fund needed projects, while consumers may use it to buy a home or finance a college education. At
the same time, debt can be risky, especially for companies or individuals that accumulate too much
of it. The best way to stay out of debt trouble is to have a plan for paying it off. That starts with not
taking on too much debt in the first place.

3.Your Credit Score

A credit score is a three-digit number, usually on a
scale of 300 to 850, that estimates how likely you
are to repay borrowed money and pay bills. Credit
scores are calculated from information about your
credit accounts. That data is gathered by credit-
reporting agencies, also called credit bureaus, and
compiled into your credit reports. The three largest
bureaus are Equifax, Experian and TransUnion.

A good credit score is the key to accessing better-quality financial products, such as credit cards with
lower interest rates, favorable insurance rates, and faster loan approvals.

Since your financial records determine your credit score, the sooner you record positive financial
habits, the easier it will be to build a good one. One of the fastest ways to officially document your
financial decisions is to get a credit card early.

Once you have your credit card, develop healthy spending and paying patterns to gradually build a
higher credit score.

Remember, a credit card is a double-edged sword for your credit history. Although it can build your
credit score when used responsibly, it can also be a gateway to overspending or accumulating debt,
negatively impacting your credit.
4.Practice Good Spending Habits
Developing and maintaining healthy spending habits can greatly impact your financial future.
Overspending can lead to a lack of available funds when the unexpected occurs. Developing a
spending plan helps you to understand what monetary resources are available to you as well
as your expected expenses.

Be a smart shopper… look for sales, discounts and coupons, but remember purchasing
something you don’t need just because it’s on sale doesn’t save money. It actually costs you
money.

Our entire economy is based on marketing and advertising millions of products to consumers,
most of which we don’t need. Many people fall into the trap of buying products and services
because it makes them feel good. Shopping can be addictive and destructive if you’re wasting
money on things you don’t need to the detriment of saving for the future.

It has to be a balancing act; you need to balance your true needs and your wants. Do you
really need a $6 drink from Starbucks 4 or 5 times each week, or would it be a better long term
decision to have one each week and save $50+ each month with money??
5.The Psychology of Money
 6. The Basics of Investing
 What is the difference between saving and investing?
o Saving is putting money aside for future use. It's important to save so you can cover fixed expenses, like bills,
mortgage or rent payments, and to make sure you're prepared for emergencies. Generally, people put their
savings in bank accounts.
o Investing is when you put your money to work for you. You buy an investment, like a stock or bond with the
hope that its value will increase over time. Although investing comes with the risk of losing money, should a
stock or bond decrease in value, it also has the potential for greater returns than you’d receive by putting your
money in a bank account.
 Why should I invest?
o Investing can help you achieve financial goals, like buying a home or funding your retirement. By investing,
you're putting your money to work to reach these goals.
 When should I start investing?
o Generally, sooner is better. Historically, the longer you invest, the less impact the short-term ups and downs of
the market have on your return. Many investors sit on the sidelines, waiting for the "right" time to invest.
Unfortunately, timing the market is virtually impossible. Instead, consider just getting started and remember
this old investing adage: Time in the market is more important than timing the market.
 How Much Should I invest?
o It depends on how much you have, as well as your goals and timeline (also called your time horizon). But a
good rule of thumb is to invest the maximum you can comfortably afford, after setting aside an emergency
fund, paying off high-cost debt, funding daily living expenses, and saving for any short-term goals. By
investing on a regular basis, over time you can potentially achieve greater returns through compounding.
 Is Investing risky?
o Investing has risks. The goal is to manage them. The best way to do this is to have a plan, know when you’ll
need the money, and diversify your portfolio. Diversification spreads your money around different types of
investments, so you're not putting all your eggs in one basket. You want to divide your money among stocks,
bonds, and cash investments based on your risk tolerance and timeline. Dividing even further, you could
include different types of stocks, such as large-cap, small-cap, and international. And within those divisions,
you could have stocks representing different sectors (for example, technology and health care). The ultimate
goal is to own investments that don’t historically move in tandem.
 7. The Power of Compound Interest
When investing, accounts earn compound interest, meaning the combined value of your principal
amount and your accrued interest earns additional interest. Compound interest is important because,
compared to simple interest, it can give you much greater returns over an extended period of time.
The graph below demonstrates two different accounts: one earning simple interest and one earning
compound interest with the same principal deposit.
The combination of compound interest and time can lead to a greater return in your wallet later in
your life. Even if you only have a small amount of discretionary income, investing early can be one of
the most rewarding financial decisions you ever make.
 FINAL THOUGHTS…..
Would you like to be WEALTHY some day…?
Or at least financially secure???

 It's really common sense; budgeting, avoiding bad debt, maintaining a

consistent savings habits, spending less than you make, and investing
early and often are all pillars of building wealth and creating financial
security.

 These are all skills that you learn and practice over time. Everyone
makes mistakes and has temporary money challenges. That’s OK!
Learn from your mistakes and seek to understand these good habits.
Sadly, there isn’t enough general education in our k-12 school systems
around these topics so you will have to seek this knowledge and put it
into practice yourself.

 Identify your financial goals, values, and desires—apart from your

friends and social media! You are 100% in control of your own
financial future. Try and surround yourself with people who support
your goals and embody your money habits. Its ok to talk about money
with trusted elders and more experienced peers.

 Take the time to learn and practice good habits with money WHILE YOU
ARE YOUNG. Good habits will make you a happy and financially secure
adult. Bad habits will make you a miserable and insecure adult. The
amount of anxiety and stress that people feel when their finances are
poor is demoralizing. Having solid financial footing will empower you
to have more choices and prepare you for emergencies (like your
car needing an immediate repair) as well as amazing
opportunities (like the ability to travel to fun places with friends
on short notice).