7 Money Skills Every High School Grad Should Have

Most American high school students aren’t given a financial education. High school graduates are able to send money on their phones, but they don’t know how to handle simple financial transactions. They also have little understanding of borrowing money, but they are signing up for tens of thousands of dollars in student loan debt.

Parents also continue to shelter their children from financial hardship for years after they graduate, sometimes well into their 30s. A study by Merrill Lynch and Age Wave shows that U.S. parents are spending $500 billion supporting their children aged 18-34. Seventy-nine percent of parents report helping their adult children financially, whether it’s paying their phone bill or paying for a wedding. Seventy-two percent of parents lament that someone didn’t teach their children about investing in school.

Of course, parents aren’t necessarily setting a good example. A lack of financial literacy is a problem that spans the generations. Here are some statistics that should drive the point home:

• 44% of Americans don’t have enough to cover a $400 emergency.
• 43% of borrowers are not making payments on their student loans.
• 38% of U.S. households are carrying an average of $16,000 in credit card debt.
• 33% of American adults have absolutely no retirement savings.

There are basic financial skills that any adult should have when they graduate high school. Here are just seven of the most common money skills that today’s graduates need:

1. Choosing a bank or credit union. Before you can start managing your money, you need a checking account and a savings account. That means choosing a bank or credit union. Banks are for-profit institutions that offer checking, savings, money market accounts, loans, credit cards, and all the other financial services you might expect. Banks tend to be larger institutions, often with branches nationwide. Credit unions are not-for-profit, member-owned institutions that serve a specific group or community. Credit unions offer all the same services and products as banks, but since they are not for profit, credit unions are structured to offer the best possible rates and terms to members. Credit unions tend to be regional but offer nationwide services such as free access to ATMs through affiliate networks.

2. Budgeting. Keeping track of household expenses is the first critical step in money management. Being able to match income to expenses and ensure that you are living on what you earn and paying your bills on time is basic budgeting. As part of budgeting, it’s also important to understand cash flow and how to balance money coming in with money going out. New tools such as auto deposit and online bill pay can make budgeting easier, but understanding budgeting is a basic financial skill.

3. Basic savings strategies. Everyone should learn now to save for the future, or at least for emergencies. Financial strategists recommend that everyone maintain an emergency fund of at least three months of living expenses, but most Americans live paycheck to paycheck without a cushion. There are various savings strategies. Some prefer the 50/30/20 method—50% of income for essentials, 30% for wants, 20% for savings. Others prefer the “pay me first” approach, making saving a priority before they use their money for other things. There are other strategies, but learning how to save is like going to the gym; it should become a habit, and you will like the end results.

4. Understanding loan terms. Countless students graduate college carrying an average of $28,650 in student loan debt, and they had no idea what these loans would cost once they graduated. Understanding the basics of loans, including the concepts of principal, term, and interest rates and the difference between a secured and an unsecured loan, is essential if you are borrowing to buy a car or house.

5. Building credit. Your credit score is an important metric for your financial health. Building and maintaining a high credit score is a matter of understanding how credit works. To do so, you should pay all of your bills on time and avoid carrying too much debt—but also make sure to carry some debt to establish credit. Many students fear credit card debt, so they avoid credit cards altogether, which means they lack the credit history they need to qualify for a loan, or even a lease on an apartment. Using strategies such as a secured credit card can help you build your credit score without accumulating debt.

6. Managing credit cards and debt. Credit cards can be useful tools to manage spending, and for gathering bonus points, travel rewards, and cash back. However, too many first-time credit card users run up huge amounts of debt because they don’t understand the difference between a charge card and a credit card or how revolving credit works. Understanding how credit card interest works is a lesson best learned before the bills come due.

7. Saving and investing for retirement. Long-term financial planning is an important skill for everyone. Sixty percent of Americans say they know they need to plan for retirement but don’t know how, and that jumps to 70% for those between the ages of 18-39. Developing a retirement savings strategy and understanding how to use savings plans such as a 401(k), IRA, and CD is the first step. It’s also valuable to understand the basics of investing and how stocks and bonds can help finance retirement.

Everyone should have a working financial education by the time they graduate high school. Would you like more financial advice delivered straight to your inbox? Subscribe to the iQ blog today.