Understanding how to manage money prudently enables adolescents not only to navigate the present but also equips them for long-term success

Adolescence is a time of significant change and growth, when children transition from childhood to young adults and prepare for the future. Among the many skills they need to develop to navigate the adult world, is financial literacy. Understanding how to manage money prudently enables adolescents not only to navigate the present but also equips them for long-term success. Here are some important money management nostrums teens should familiarise themselves with:

Understand the basics
Financial literacy begins with understanding the basics of money management. This includes knowing how to earn, save, spend, and invest. Teens should start by familiarizing themselves with concepts such as income, expenditure, budgeting, and saving — the foundational concepts of financial literacy.
Income. This is the money you earn, whether it’s from a part-time job, pocket money, allowance, or gifts. Understanding where your money comes from is the first step in managing it effectively.

Expenses. These are the things you spend money on. Expenses can be fixed (such as a monthly subscription, house rent) or variable (shopping, dining out with friends). Tracking your expenses helps you understand what items you are spending your money on.
Budgeting. A budget is a plan for how you’ll spend and save your income. It enables you to live within your means and set aside some income for future needs.
Saving. Saving is about putting money aside for future use. It’s important to save for emergencies and future goals such as funding college education, a car, or even purchasing a home.

Create a budget
Budgeting is a skill every teen should learn. Here’s a five-step guide to create a monthly budget:

1. List your income. List the money you receive at regular intervals. It could come from a part-time job, by way of pocket money from parents, or any other source.
2. List your expenses. Write down everything you spend money on. This includes necessities such as snacks and transportation, as well as discretionary spending (shopping, entertainment).
3. Categorise your expenses. Group your expenses into categories such as needs (essentials such as food and clothing) and discretionary (non-essential expenditure such as dining out and entertainment).
4. Allocate your income. Decide how much you want to spend in each category. Ensure you provide for needs first, and then allocate money for wants and savings.
5. Track your spending. Keep track of your spending through the month to ensure you’re sticking to the budget. Monitor and adjust the budget if you are overspending and/or have to spend on an emergency.

• Importance of saving
  It’s important for teens to develop the habit of saving regularly, even if it’s just a small amount. Here are some tips to start saving:
• Set a specific savings goal which will motivate you to save. It could be for something such as buying a new phone, or long-term like saving for college expenses.
• Categorise savings as a fixed expense. Decide on the percentage of income to save each month and transfer that amount to your savings account before spending on anything else.
• Open a savings account; it earns you higher interest than a current account. This will also help separate your savings from spending money.
• Avoid impulse purchases. Delayed gratification will help you save more.

Credit and debt
As teens transition into adulthood, they are likely to encounter credit and debt. Understanding how to use credit responsibly is crucial to maintaining good financial health and credit ratings.

Credit cards. While they are useful to avail credit, they must be used wisely. Always pay your balance in full each month to avoid interest charges and debt accumulation.

Interest rates. When you borrow money, you typically have to pay back more than you borrowed. This extra amount is the interest payable. Understanding interest rates helps you make informed decisions about incurring debt.

Debt management. If in debt, make a plan to pay it off. This might involve cutting back on expenses, increasing your income, or consolidating debt.

Investment
Investing is another important aspect of financial literacy. While it might seem daunting at first, investment is the prerequisite of growing savings. Here are some basics to get started:

Start early. The earlier you start investing, the more time your savings have has to grow. Even small amounts can grow significantly over time due to interest being compounded.

Educate yourself. Learn about different types of investment options — equity, bonds, mutual funds, and real estate. Research and understand the risks and potential returns of each type of investment.

Diversify. Don’t put all your money in one basket. Diversify your investment to spread risk and increase returns.

Seek advice. If you’re unsure where to start, ask for advice from a trusted adult or financial advisor.

Good financial habits
Developing good financial habits during adolescence sets the stage for a financially secure future. Here are some habits to cultivate:

Live within your means. Avoid spending more than you earn. This avoids indebtedness and swells savings.

Be well-informed. Read books, newspapers, attend workshops, and talk to knowledgeable people, to remain well-informed about the financial world.

Plan for the future. Whether it’s saving to pay for college, buying a car, or traveling, planned expenditure helps you remain secure.

Be disciplined. Stick to your budget and savings plan. It might be challenging at times, but discipline is key to financial success.

Financial literacy is an essential life skill that empowers teens to make informed decisions about money. By understanding the basics of income, expenses, budgeting, saving, credit, debt, and investing, teenagers can build a strong foundation for the future.