In the last few decades, many things have changed between the global and US economies. Our job markets have become incredibly competitive, especially in industries such as technology, business, and healthcare. What does this mean?
It means that people need to be wiser with money, learn to make good financial decisions, and become well-versed in finance to ensure they are financially stable. Gen Z has been born amidst this world. However, only 16% of Gen Z students receive adequate financial education, whether on their own or through an education system. This is an alarming problem, as in the face of the next few decades, it becomes more important for people to understand financial markets and personal finance.
There are a variety of skills that students need to equip themselves with in finance. These include knowledge of investing and managing assets, personal finance with property and insurance, and taxes. In the ideal world, financial education would be made a staple of the public education system, where all students would be required to study basic financial skills.
However, this is not the case. Now, you might not have any concrete reason to study finance since you don’t know what specific skills you need. Read the rest of this article to learn about some of the most important things you need to know.
Future of Finance
Earlier, finance used to be traditionally through cash and banking, and although that is still a large part of our world, the landscape is changing. Technological advancements, the proliferation of digital payment methods, and the rising importance of cryptocurrencies and blockchain technology are all contributing to the increasing complexity of the financial world.
The rise of cloud computing, big data, and artificial intelligence is making it possible for financial institutions to collect and analyze more data than ever before. This data can be used to develop new financial products and services, improve risk management, and make better investment decisions. As a consumer, you should recognize when your data and privacy are being violated.
Additionally, you should play an active role in understanding your finance (your investments and portfolio) instead of only relying on financial institutions to manage your money. This will also prevent you from risking money.
In the past, people used cash and checks to make payments. Today, there are a wide variety of digital payment methods available, such as credit cards, debit cards, e-wallets, and mobile payments. The increasing use of digital payment methods is making it easier for people to make and receive payments, but it is also creating new challenges for financial institutions.
Soon, businesses will be relying on apps to conduct payments. Students need to learn about this variety of payment methods to make sure their money is secure and they are not being scammed.
Navigating the World of Finance
As a teenager, you are just years away from financial independence. This means you will be managing your own money, buying, and spending, and it also means you’re responsible for yourself. Teens must learn about how the real world works in terms of finance and that it’s not as simple as getting money from jobs and spending it.
There are a lot of factors such as saving your money, investing in assets, taxes, and other payments you are responsible for. If you don’t learn about these things through financial literacy courses or just educate yourself using the internet, all these things will hit you like a truck the moment you’re independent. And that can lead to bad decision-making where you’re spending more than you’re earning, not being able to keep up with debt and other payments, and will need help in the future.
On the other hand, someone who budgets well, and understands where they need to spend money, and where they don’t want to, will end up being financially stable. By creating a budget, teens can learn to track their spending, set financial goals, and make sure they are not overspending. It’s really easy for you to start doing this since you can make a spreadsheet or use a simple budgeting app to track how much money you make at a job or how much your parents give you, how much you spend, and how much you save.
Accounts
I would also recommend having a checking/savings account, which will let you get used to using a credit/debit card and managing money in your account. A lot of banks provide perks for student accounts such as low deposit requirements, waived fees, and sign-up bonuses. You can easily start an account that can be linked to your parent until a certain age when you will be fully independent. Banks like Wells Fargo, Chase, and Bank of America are very student-friendly.
A benefit of having a bank account from a well-known institution is that you can easily open a brokerage account, which will allow you to invest. Investing is one of the best ways to get your money since market returns will generally grow every year and compound over time. Apart from paying taxes, you will be able to make decisions and keep the money you earn from investing.
It’s safest for teens to make long-term investments in safe companies, however, experienced investors can make trades with higher risk. I strongly recommend taking online courses about investing and choosing good investments.
In the modern era, most teens are going to spend money online, which means they need to know about online shopping and transactions. It’s very important to keep your credit card information safe and only trust apps or stores which have a reputation. Make sure to practice comparison shopping to find the best price for products and use applications that give you discount codes to save money. Generally, online shopping can feel fun, but you need to make sure not to overspend.
Credit
One of the most important indicators of how well someone is doing financially is their credit score. Credit scores are given primarily by FICO, which gives you a score between 300 and 850, based on credit reports. As minors, we cannot have independent credit reports, but parents can set up bank accounts using other institutions and sponsor youth accounts. By adding authorized users to their accounts and using a credit card such as Visa’s STEP card, parents can start building credit scores for their children.
Poor credit scores can range from 300-600, with 600-700 being decent, and anything above that being good or great. But what’s the point of a credit score? Your credit score has a significant impact on your financial well-being.
It can affect your ability to qualify for loans, credit cards, apartments, and even jobs. A good credit score can save you money on interest rates and other fees, and it can make it easier to get approved for the things you need.
Usually, good credit scores mean that you pay back loans on time and make payments when they’re due. This tells companies, banks, and other lenders that you’re likely to pay back their money. Therefore, you’ll have a high chance of getting approved for these loans and you’ll receive lower interest rates, as compared to exorbitant interest rates for those who have poor credit scores.
Generally, students need good credit since they’re taking out student loans for college, and they’ll be buying their car or vehicle and renting/buying property to live in. A good credit score is important, but it's also important to borrow responsibly. Only borrow what you can afford to repay, and make sure you make your payments on time each month or year. By borrowing responsibly, you can improve your credit score and protect your financial well-being.
Investments
As I mentioned before, investing is one of the most valuable financial skills you can have. The earlier you start, the more your money will grow. The average return for the S and P 500 (a market of common stocks people invest in) is 10%, which means an investor can expect to double their investment every 7 years, even if they don’t deposit any additional money. Investments make sure your money doesn’t lose value as a result of inflation.
Many types of investments can be bought, but I’ll focus on stocks and bonds. In general, you should try to diversify your portfolio to include investing in companies from various industries and include some fixed-income securities. Stocks are essentially buying a piece of the company, and as more people buy shares of the company, the price goes up (demand is greater than supply).
However, if more people sell shares, the price goes down. Therefore, you should try to initially invest in safe companies which provide stable returns and minimal risk.
As you become more advanced at identifying trends and analyzing the market, you’ll be able to pick up on more volatile stocks which can gain value quickly. If you want to minimize risk even more, you can invest in equity funds, which is like buying a piece of the market including many stocks. For example, the S and P 500 ETF trust closely follows the S and P 500 index value, so your returns will closely follow how the market is doing.
Besides trying to have a mix of stocks, consider investing in bonds and bond funds. These are completely safe investments where you loan money (to, for example, the US Treasury), and the Treasury will pay you interest for a certain amount of time until the bond “matures”. Then, you will receive your initial investment back.
This is fixed income, where you steadily gain interest, but the interest rate may be much lower than the returns you would get from the market. However, this is risk-free (unless the borrower defaults, meaning they cannot pay it back. In this case, you would likely receive a portion of your investment back. This is very unlikely, especially if you lend to institutions like the US Treasury).
One way you can track your investments is through milestone planning, where you set goals for different points in your life. This will allow you to hit benchmarks that allow you to have enough money to pay back loans and debt and have enough money for discretionary spending.
At the end of the day, we’re going to be the leaders of the next generation, which means we’ll be making important decisions regarding money. Knowing how basic financial decisions have impacts can allow us to make more informed decisions. Sadly, we see fewer and fewer people educating themselves on financial topics and this will be negatively impacting individuals and society. Ultimately, it's your decision whether or not to learn to be financially stable or not.
