The Importance of Understanding Finance

Now if you're a teenager, you must be thinking “Why do I need to learn about finances, I’m not an adult yet?” or “I still live with my parents, they have it under control.” But the truth is you need to understand how to manage your finances sooner than most people anticipate. Before I get into the why, let me share some stats with you.

• 61% of Americans don’t have enough savings to cover a $1,000 emergency

• There is currently over $1.5 trillion student loan debt nationwide

• 40% of people who have student debt are predicted to go into default by 2023

• 33% of American adults have 0% saved for retirement and the suggested amount of savings for people going into retirement is $1 million

• 191 million Americans have credit card debt

These stats are shocking and although some don’t apply to teenagers, a lot of them will in the near future. It’s also imperative for you to understand finances, so you can help your parents as managing finances is a major stress factor in their life. 

It’s important to understand finances, as it affects us every single day of our lives. When we go grocery shopping, when we get a job, shop for clothes, go on vacation, buy a car, and so much more! Basically everything we do revolves around and depends on our finances. So doesn’t it seem self-explanatory why we should understand how to manage finances? But why do most people not understand it then? 

It's common for most people to shy away from understanding how to manage their finances as it is such a vast topic and can be really scary to dive head first into, but without understanding the basics of finance people rack up all sorts of debt and don’t understand the difference between good debt and bad debt. Racking up debt can also lead to all sorts of physical and mental health problems as going through financial struggles is stressful and taxing. 

And let’s not forget student loans, as a teenager you will be experiencing this in the near future. Understanding the best way to tackle student loans is important as you don’t want to spend decades trying to pay off your loan when you could be saving that money. You also don’t want to go into default, which means you weren’t able to pay your debts within the allotted time. The repercussions of going into default is loss of credit score or ability to receive credit in the future and/or annexing of personal property. Having a plan on how you are going to pay off your student debt as soon as possible is crucial as student loans can last as long as 30 years!

Some easy steps to learn how to manage finances are:

• Understand your finances

Even if you don’t understand all the intricate inner-workings of the finance world, that’s alright. At the very least understand your own finances and what are the best steps for you to save money and not succumb to debt. 

• Set realistic benchmarks

It’s important to set benchmarks and goals of where you want to be in the future so you can manage your money accordingly. Do you want to buy a new house within the next year? Or maybe pursue a higher education within the next five? Whatever it is, it is important to plan ahead and make sure your finances will allow you to pursue whatever lies ahead in your future. An extension of planning ahead, is to plan realistically. Don’t say you want to be a multi-millionaire within the next year when you are a fresh out of college living on takeout. Planning realistically will give you an idea on what are the best steps for you to take in terms of your finances.