Episode 64 — What Every Teen Should Know About Money

Most adults say the same thing when it comes to money: “I wish I had learned this earlier.”

In this episode of Catholic Money Talk, we walk through some of the basic financial principles every young person should understand before stepping into adult life.

We talk about how teens can learn to give, save, and spend wisely, why budgeting matters early, how to build an emergency fund, why buying a car with cash matters, and how to avoid the burden of student loans.

If you have a teenager in your life, this is a great episode to listen to together.

Transcript

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Paul, Welcome to Catholic money talk, where we talk about all things money and finance, and we try to do it through a lens of being Catholic, where our ultimate goal is to one day be in Heaven with the Lord. I am your host. Paul Scarfone, thank you for being here today. As I've mentioned before, I teach personal finance the seniors at my children's school, and today, I want to share some of the basic principles that we cover that might help the young people in your life, whether it be your kids, siblings, nieces, nephews, your godchildren. As I said in the episode title, listen to this episode with your 16 year old. It will probably benefit both of you. But before we do that, let's say a prayer in the name of the Father and of the Son and of the Holy Spirit. Amen, Heavenly Father, we thank you for this day, we ask You for all the grace and wisdom that we need to face the challenges and those circumstances that we find ourselves in. We know that you love us and that you have an awesome plan for us. Allow us to yield to your Holy Spirit. Give us great confidence in your provision for us. Lord, we ask all this in Jesus name, amen, in the name of the Father and of the Son and of the Holy Spirit, Amen. So again, today we're going to talk about some basic principles that you should share with the young people in your life. Again, listen to this with a 16 year old. So I teach personal finance at the seniors at my kids school, and I've been doing this for the past five years, and when I tell adults about this, I often get the response that they wish they had learned this in high school. But here's the big challenge, it's tough teaching seniors, because they get senioritis, right? So halfway through the year, they start to just disengage. And when I teach them, they'll also look at me like, Dude, I don't have to worry about any of this for at least a year, a year, a short year, but in their minds, that is still forever away, most of them can't think past this coming weekend or maybe their next fun outing. The reality is, adult life can seem eons away to their young minds, but here's the deal, it's sooner than you think, snap your fingers and you'll be months away from today. Close your eyes, open them. You'll be beyond college graduation and trying to learn about life and finances the hard way. So what do we do? I break it down for them in simple chunks to hopefully get them to start working those muscles that will help them in adulthood and managing their finances. The first principle I teach the kids is that everything belongs to God, the money that we have and our ability to earn it. So we need to prayerfully consider our options and intentionally plan to give, save and spend in a way that glorifies Him. There are three things we can do with money. We can give it, we can save it, and we can spend it. So let's help young folks understand why these are important and help them to develop the financial muscles that will help them in life. Let's start with spending. Have you ever spent money as soon as you received it as a kid? I remember getting, you know, maybe $5 from my grandparents for a birthday, and wanting to so badly go to the dollar store to buy a toy or some candy. My dad would often say to me as a kid, don't let that money burn a hole in your pocket, right? It's a term just referring to the money that comes in you put in your pocket, you spend it so quickly, it's like there's just a hole in there, right? Because moments later you have no money. You spent it all. And that was me as a little kid, but it was hard not to want to spend as kids and even millions of adults. Still, we live for instant gratification. We want it now. We can't wait. Money is only as exciting as what it can be quickly exchanged for many people struggle with this as we get older and we don't change this behavior, we get stuck in this cycle of spending all the money we have as soon as it comes in. This is known in finances as living paycheck to paycheck. This is when we spend all the money from each paycheck, and if the next paycheck doesn't arrive on schedule, we're going to have a problem. 78% of households in the United States live paycheck to paycheck. Tara and I, we've been there, and it is not fun. If all we do is spend, we will never have any money to save or to give away. So in order for us to make room in our spending for savings and giving, we need to have a plan. That plan is called a budget. And the best way for a young person to think about this to think about a budget, it's a plan for your money, or, maybe even better, it's a spending plan. And it actually works pretty well to think of it like this, especially when your income isn't regular, right? If you're listening this and you're a teen, you don't have consistent income, weekly or monthly. It can seem like working on a budget is irrelevant, and that is just not true. Rather, every time you receive money, think, let's create a plan for this money We just received. How much do they want to spend? How much do they want to save? How much do they want to give? For instance, I'll give you an example. My wife's father, he's very generous, and every year he sends the kids$100 each on their birthday. Children, they get very excited to use that money. And as they get older, I ask them, what's the plan for the money? And as they tell me how much they give and how much they're going to save and how much they're going to spend, I ask them, What are you spending the money on? So I'm thinking of my 13 year old daughter here. She might say, well, I'll give $10 to church on Sunday, and my kids do a great job of tithing. Maybe she'll tell me, she'll put $30 in her savings. So I'll ask her, what do you plan to do with the other 60 she'll say she wants to spend 15 to get her nails done. There's a $20 dress she wants to buy, and then she might say that she wants to treat me to ice cream and take the rest of the money and go browse clothes at the thrift store. I mean, this is so my 13 year old. She will have so much fun coming up with a spending plan for the money. And it really it's that easy. As they get older and their income becomes more steady, they have more regular expenses that they need to plan for, and their responsibility to grow. But starting them off with these basic steps of planning spending, it's key to laying a strong foundation for good money management. So now let's talk about savings. Most people don't have a problem spending money. I mean, it comes easy, especially if they need something, right? We spend it. But many people that I meet, we have a problem saving money. Saving money can be hard, especially if we find ourselves spending everything as it comes in. I look through a few different studies from earlier in 2024 this year and 44% of Americans couldn't handle$1,000 expense out of their savings account that they would likely have to borrow money to cover $1,000 an emergency. 59% of Americans are not happy with the amount that they have saved for an emergency, and only 21% of Americans have over $5,000 saved, right? These are scary numbers, especially when you think of inflation, how much everything's costing. But this is kind of what we expect when we've got 80% of the US households living paycheck to paycheck, right? When you're living paycheck to paycheck, it limits the amount that people are able to save. 91% of Americans think they should save more than they do. So why don't more people save? Well, the answer is this, they can't control their spending and or they don't have a big enough reason to save. And I talked about this in my last podcast, about the importance of having a big goal. So that's where we start. What is a big goal a top priority to save for? Well, there are three things we save for we save for an emergency, we save for large purchase, and we save to build wealth so that we can be outrageously generous. Let's first look at saving for an emergency. We save for an emergency, and we build up a fund to cover us in the event that we might run into a problem, and having a few extra dollars, we might be able to get us out of this situation. And when we don't have an emergency fund, we run the risk of any type of challenge becoming a financial one too. So what do I mean? Well, when you get a flat tire and you don't have $100 to repair the tire, you not only have a car problem, but now you also have a financial problem. When you have an accident and you need to visit to visit the emergency room and you don't have an emergency fund to cover an ER copay, maybe it's 200 bucks. Now, you don't only have a medical problem, but you also have a financial problem. Now there are three things that tells us if an if an expense is an emergency. So here they are three things. One, it is unexpected, so this would be something that you couldn't see coming right? Replacing your brakes on the car is not an emergency, because you know that you'll have to do that. That's regular maintenance and upkeep. But replacing the radiator because road debris went through the front grille and broke the radiator. That's an emergency. Two it's it is necessary. So for it to be an emergency, it needs to be necessary. Recently, we I was teaching this topic to the kids in high school, and surprise concert tickets came up. So if you get invited last minute to go to an awesome concert, but you don't have the money to cover the ticket, can you use your emergency fund? And surprisingly, there was a debate about it, because it is unexpected. No, it's not an emergency. A concert is not necessary. Then the third thing that tells you, if something is an emergency, it is urgent, so this means that it is time sensitive, right? Time is of the essence. You don't have time to save. Think of maybe you bumped a car into a tree and you want to get some paintless dent repair done and pop that bumper back out. It was unexpected. You didn't mean to bump into the tree, but the car still works, and you can actually wait and save up for it. The repair isn't urgent, right? It's not urgent. So those are the three elements that determine if an expense is a true emergency or not, right? I'll go over them one more time. One, it's unexpected. Two, it's necessary. Three, it's urgent. It's got to be all three for it to be an emergency. So when you're a young teen and you're just learning how to handle finances, setting up a small emergency fund just to learn it's a great idea. $100 or even 50 bucks is a great place to start. This could cover something simple like maybe fixing a bike tire or some sports equipment. When you start driving around, you get your permit or your license, increase the emergency fund to 250 or$500 to help you to cover maybe a car repair if there was an emergency that needs to be handled. And then, once you're grown, living on your own, a fully funded emergency fund should be three to six months of living expenses, right? So that's much bigger. That's going to cover things like, you know, food, shelter, clothing, transportation to work in the event of a problem, right? So you want to be able to have those living expenses covered three to six months of it. If you want to learn more about emergency funds, let's listen to episode 29 I talk all about emergency funds there. So the next thing you might save for is a large purchase. It's great to teach kids about this. It helps them to have self control and discipline. It teaches them to delay gratification and that good things come to those who wait having a young child slowly save their chore money for a Lego purchase is a great example. I did that recently with my four year old, my kids get Daddy dollars when they do chores, and he slowly, over a few weeks, was able to pull 20 bucks together to make the purchase. My seven year old, he was too busy spending his daddy dollars on snacks and candy. He almost lost his mind when he saw his younger brother get a new Lego set. It was a great life lesson. Also shows the difference in personalities that our kids have, right? Even as adults, some of us are spenders and some of us are savers. We need to have a little bit of both and exercise good discipline. As kids get older, it's great to offer them some incentive to save. You know, matching program can be super helpful. We did that with my oldest son, when he purchased his first car, we had told him, you know, probably when he was a freshman High School, that we would match whatever he saved. He saved 3000 so we matched his 3000 and I love the fact that he spent less than four grand on his first car so that he could use that extra money to beef up his emergency fund. And we're doing the same thing with my 15 year old daughter, although we're having to put a cap on it because she saves a lot more than my son did. And then lastly, we save for long term wealth building. And that's not so that we can build bigger barns, right, but it's so we can take care of ourselves long term, and so that we can be generous to those around us. There is great prudence in savings for the future. I love the story of Joseph in the Old Testament, when he translates Pharaoh's dream. And they're having some great times, and there's going to be some, you know, their years of good harvest and then seven years of poor harvest, and to save up for the long term, right? So it's a great biblical principle. And again, the goal isn't to have so much money in retirement, right? The biggest thing, the longest term thing that many of us will save for is retirement, and the goal isn't to have so much money in retirement that we can have an easy life. No, it's so that we can continue to be outrageously generous even through retirement. One of my favorite stories is about savings for long term. Is about a couple, and they were making an ask at a Catholic fundraising dinner. This is several years ago, and the husband said that his wife had convinced him that they should tithe all their way through their life, right, giving 10% of their income to the Lord and His work. And there came a moment when he was calculating their retirement savings, and it dawned on him that they had enough to retire. They had saved enough that they should be set for retirement. His wife responded to him, perfect. Then we can keep on working and give 100% of it away, right? That's awesome. What a great example to me and all of us of what savings and building wealth is all about. It's to put everything we have at the service of the Lord. And so that brings us to the last thing that we can do with money. We talked about spending and saving, and now we're on giving. Giving is my favorite thing to do with money, and when we make giving our priority, it forces us to create a plan to spend and to save and to make sure that we have something. To give. There's three ways that we can give. I like to kind of designate this in my mind. I like to be organized with my finances. But the first way to give is the tithe. And in the Old Testament, the law required everyone to tithe 10% off the top. Actually, when the principle first came out, it was referred to as the principle of the first fruits, right? And that was that idea was that the entire whole first of whatever you received would go the Lord, right. So think of a farmer with his crop, right? The first day they go out and gather all the their crop, that first day's harvest, it all just went to the Lord, right? You bring it in, you give it to the Lord, and you trust that nothing's going to happen to remaining to the remaining crops before you can get out there and get it again, right? So you get out there tomorrow to collect some for yourself, right? It created a deep trust in the Lord's provision. Right? Everything belongs to him, and so we have to give to him first. It is much easier for us these days to just give 10% every time we get paid, right? Because we know we get another paycheck, it's just around the corner. But I have found the tithing, because it's the first thing we do with our money has had the greatest impact on how we handle our finances. It places my love for God over the money that I have. I really in my mind, it's like, how do you make Jesus the Lord of your finances? You tithe. That's how I view it. Matthew six, verse 21 for where your treasure is there also will your heart be, right? We place our treasure at the foot of Lord so that our heart will be there too. It is a great place to be, to reside at the feet of our Lord. So tithing is the first thing we do with money. But then in the New Testament, Jesus comes, and he kind of ups the ante. Remember, in Luke 21 he talks about the rich people are giving so much of their treasure, you know, honestly, they were probably tithing. And then the little old lady comes and she gives two pennies, and Jesus says that she had given more than all the other people. Why? Because she gave everything she had, right? Jesus just doesn't want us to look at the tithe like, Oh, if I give 10% yay, I've achieved the goal. No, He wants us to just go past that, just blow past it, and be outrageously generous. So beyond our tithes, we give offerings. Offerings are where we can give and what we can give to those people and organizations around us that we want to support and financially help out. Maybe it's a mission that we want to be able to partner with. Additionally, we can also give alms. And ALMS are when we provide money to the poor and provide basic necessities to the poorest in our communities. So giving is the most fun we can have with money. If you haven't given start today, you'll see it's so much fun. Maybe you could start by buying a friend something they need, or give 10% of your money to the collection basket at church. One of the most fun ways that we've taught our kids to give and be generous is through The Giving Tree at church. So in our parish, during Advent, the church sets up a Christmas tree, and it's covered with all these tags. It's got someone's age and then an item maybe they need or they want, and it's for people in need in your area, right? So whatever the different organizations are, maybe it's homeless shelters or food pantries or St Vincent de Paul organizations, right? It's a tag, and it can range from a winter coat to a new Lego set, right? So it might say nine year old boy Lego set, right? So we let each of our kids pick a tag off the tree, and then we help them shop for that person. It's one of my favorite things to do. Why? Because I remember as a kid my family, we were poor, our names, our family's names were on tags in a couple different churches, and I always remember being so excited to see the things that we received through other people's generosity. And I wanted to be those people. And so it's so much fun doing that again, because as we do it, I can just imagine how happy those people are going to be, right, how much joy we can bring them through our generosity. It's a great way to teach your kids. So there we have it. There's only three things you can do with money. You can give, save and spend. When we create and stick to a budget, we're able to ensure that we do all three. Now for you young people, you know, if you're in high school, I'm going to give you the first three steps you want to do. These are the first three steps for your financial plan. All right, so we just talked about everything you could possibly do with money. Here's the first three things you're going to do. Step one, save a $500 emergency fund, right? This is an appropriate size emergency fund, as I mentioned before, for someone who's in high school, especially when you're starting to drive. Step two, buy your car with cash. Most people, right? Most people are paycheck to paycheck. Most people have car payments, and the average car payment. In the United States, it's over $700 a month that blows my mind. Stay away from that. Save up to buy your car for cash. It will be a great way to work that savings muscle, and it will serve you the rest of your life. Step number three, go to school debt free. Avoid student loans. Student loans, they've been stifling the last few generations, going to college debt free. It's not hard, but you need to have a plan. You need to be intentional. So create a plan and take student loans off the table. They're not an option. It's so much fun to have a budget where you plan to give, save and spend, and loan payments aren't part of the budget, right? So there's your three steps. I'll rattle them through one more time. Say 500 for an emergency fund, buy your car with cash, go to college debt free, right? So and all throughout that, right? Those are your first three steps. You're budgeting, you're giving, you're saving, you're spending, and you've got a plan to do those. So if you're a young person listening to this, start doing all of this. Now, if an adult shared this with you, ask them, when did they start managing their money? Well, you might get a variety of answers, but I guarantee you they will tell you they wish they knew all of this when they were younger. The key with all of this is, no matter where you are or how old you are, it's never too late start now. So I hope this has been helpful. Thank you for joining me today. God bless you. Thank you for listening to Catholic money talk. I hope you join us again next time, please click Subscribe on your podcast app to get notified of new episodes. God bless you and have a great day. Foreign