Financial basics for your high school graduate

Prompted by the economic challenges and uncertainty caused by the COVID-19 pandemic, more states are requiring financial literacy classes for high schoolers.1 This is an encouraging step because a recent survey found over half of teens feel unprepared to finance their futures.2 

But what if your child did not have the opportunity to take a financial literacy course? As a parent, you want the best for your child’s future, and making sure they have the financial knowledge they need to thrive is crucial.  

For many parents, all they want for their child is a long and happy life of prosperity – establishing a positive relationship with money, and healthy financial habits is an important part of that future success. Here are five key financial basics you can help teach your child about today, to set them up for financial success in the future. 

5 Key financial components your child should understand 

Teaching teenagers financial responsibility is an important part of their future success as independent adults, and a positive future for them as contributing members of society. Money management education can start as early as middle school with basic introductory concepts.  It's never too early, or too late to start learning about personal finance, which can set a strong foundation for financial literacy in adulthood. Whether they’re leaving the nest in a few weeks, or a few years, here are five areas of personal finance your child should learn about. 

1. What they earn 

Paychecks can be exciting and confusing for teens when they first start to earn for themselves. There are several standard paycheck line items all teens leaving high school should understand regarding their earnings. You should make sure and cover how taxes and other deductions impact their take-home pay including terms like the following: 

  • Gross income: The total amount earned before any taxes or deductions are taken out 

  • Net income: The amount of money left after taxes and other deductions are taken out 

  • Federal income tax: Tax paid to the federal government as determined by income level and filing status 

  • State income tax: Tax paid to the state government. Note that not all states enforce this. 

  • Social security tax: Tax deducted to fund the Social Security program 

  • Medicare tax: Tax deducted to fund the Medicare program. 

  • Retirement contribution: Funds deducted from gross income and put into a retirement account of the payee’s choice. They also reduce your taxable income. 

  • Health insurance premiums: Deductions that pay for the employee’s portion of their health care coverage. This may not apply to all of their jobs, but likely will in the future. 

  • Other deductions: While rare for a high school graduate, these may include child support, wage garnishments, or charitable contributions. 

2. What they spend 

Now that your grad is earning money, what will they spend it on? This is where financial literacy for high schoolers becomes key. It’s never been easier to spend, with targeted ads and online shopping proving a temptation few can resist – talking with your teen about how to manage their spending is a key part of their financial education journey. 

Even if they are not paying certain expenses themselves, teens should thoroughly understand day-to-day living costs. A basic budget can help them track inbound and outbound money while establishing healthy spending habits. 

Using an online budget planner, like Mint for example, can help make budgeting more interactive and engaging while allowing real-time monitoring. Make sure your teen knows every category that can be tracked including: 

  • Housing 

  • Food 

  • Transportation 

  • Personal care 

  • Entertainment 

  • Education 

  • Health 

  • Savings 

  • Debt 

  • Miscellaneous 

With a budget in hand, conversations around spending and savings can be much easier. As a rule of thumb, the ideal cost of living against income as a percentage is 50%, meaning half of your child’s income can cover their basic needs while the other half can go toward entertainment, saving, and investing. 

3. What they save for 

With a firmer understanding of budgeting and money management for teens, it’s time to start thinking about long-term financial goals. Sure, when your child is in their first year of university they’re more likely thinking about what to have for dinner that night than their long-term financial goals, but starting early and developing good habits as soon as possible will help set them on the right course. Having a target can be a powerful motivator for encouraging good spending and savings habits. Your grad can begin saving for any number of reasons including: 

  • Travel between semesters 

  • Buy their first car 

  • Pay off student loans 

  • Start a business 

  • Save for a home 

  • Start a hobby 

These are just some ideas, and everyone’s financial goals are different. Remember to guide your grad rather than push. This can also be an excellent time to explain the importance of saving for unexpected expenses in a surprise fund.  

4. When and how to borrow 

When your grad turns 18, they become eligible for certain privileges and opportunities like opening a credit card account. Borrowing can be a valuable financial tool when approached correctly, but it can be equally dangerous. 

As a parent, teaching your graduate about the benefits and risks of using credit cards can help them avoid severe financial damage. Here are some tips: 

  • Begin with the basics and explain what credit is and how credit cards work. 

  • Emphasize the importance of minimum payments to avoid penalties and fees and how this approach can drag out repayment windows and tack on additional interest. 

  • Discuss debt-to-income ratios and how it applies to your child’s future goals such as buying a home. 

  • Explain how credit scores work and how credit card use impacts this. 

  • Help your child open their first credit card, and encourage them to ask for the lowest credit limit to start – starting slow and learning good habits is key! 

Don’t be afraid to bring out your own credit card statements and show your child some real-life examples. Some parents choose to add their child as an authorized user on their own card for practice before encouraging them to open a separate account. Even then, consider a student credit card designed to help college students build their credit history while limiting how much debt they can accrue. 

For many recent high school grads, their first experience with borrowing will be student loans – teaching your child about what those loans are, what those funds can and should be used for, and the implications of paying them back over time can be an important entry point for a wider conversation about loans and borrowing. 

5. How to protect against fraud 

While having a bank account, credit card, phone bill, and other financial tools can be valuable for achieving financial independence, they open the door to identity theft, scams, and fraud.  

Identity theft affects about 1 in 20 Americans each year, producing a new victim every 22 seconds.3 Financial education for teens should include teaching them to: 

  • Monitor their financial accounts and credit reports for unauthorized activity. 

  • Keep their personal information including their social security number and birthdate safe. 

  • Use strong passwords for online financial accounts and avoid using the same password for multiple accounts. 

  • Learn about phishing scams and be wary of unsolicited emails or phone calls requesting personal information or money. 

Empower your new grad with financial know-how 

Financial education is an important aspect of preparing your child for the responsibilities of adulthood. From living on their own to paying their own bills and spending their own money, your new grad is on the verge of experiencing many things for the first time.  

As a parent, ensuring your child understands financial basics before heading out into the world can help them build a positive relationship with money, and give them the confidence, knowledge, and skills to build their future on a solid financial foundation. 

1COVID Woes Prompt More States to Require Financial Literacy Classes,” PEW Research, Apr 27, 2022

254% of teenagers feel unprepared to finance their futures, survey shows,” CNBC, Jun 1, 2022

3How Common is Identity Theft?,” Experian, Jan 24, 2021

This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.?? 

SMRU #5500518.1 exp. 3/14/2025 

Disclosure

Linda Hulbert is an agent of and licensed to sell insurance through New York Life Insurance Company and may be licensed with various other independent unaffiliated insurance companies in the states of AK, AZ, CA (CA Insurance License #0C29808), CO, ID, IN, KS, KY, MI, MT, ND, NH, NM, NV, OH, OR, PA, SC, SD, TX, UT, WA, and WI. No insurance business may be conducted outside the states referenced.

Linda Hulbert is a Registered Representative of and offers securities products & services through NYLIFE Securities LLC, Member FINRA/SIPC, a licensed insurance agency, and a wholly-owned subsidiary of New York Life Insurance Company, 110 Cushman St, Fairbanks, AK, 99701, 907-452-4400. In this regard, this communication is strictly intended for individuals residing in the states of AK, AZ, CA, MT, NV, and WA. No offers may be made or accepted from any resident outside the specific states referenced.

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Neither New York Life Insurance Company nor its agents or affiliates provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.