The Benefits of Financial Literacy for Teens and Young Adults

Financial literacy is one of the many life skills that are essential to learn early in life. Just like cooking, hygiene, or basic first aid, young people can face long-term struggles if they enter adulthood without a solid understanding of money management - and many do. According to one study, nearly three out of four teens (74%) are not financially literate.¹

There are several key benefits to teaching financial literacy to young people. Financial literacy in teens and young adults equips them with the knowledge and tools they need to make informed financial decisions throughout their entire lives.

1. Encourages Smart Budgeting Habits

Learning how to budget lays the foundation for financial stability later in life, and can be practiced with an activity to create an imaginary budget. This budgeting game can even be played with younger children, using a basic version of the activity that focuses on introducing simple financial literacy concepts of tracking income and expenses at an early age.

For teens and young adults, the activity can include variable life circumstances to change and combine, like family size, renting or owning housing, transportation, and income, even using the real wages for those who may be starting their first jobs or real cost-of-living data for places they might want to live. Imagining complications such as a medical emergency or vehicle failure can open a discussion about how to prioritize wants and needs within their lifestyle, which is an invaluable skill that a young person will utilize not only in their working years but during their retirement planning and throughout their retirement.

Especially for young people who have entered the workforce, meeting with a financial professional offers an opportunity for real-life application of budgeting skills and financial planning. Understanding how to budget promotes adaptability and good habits that will help teens and young adults control their spending, prioritize expenses, and avoid unnecessary debt, leading to long-term financial security.

2. Builds Strong Saving and Investing Habits

The earlier you start saving, the more financial security you can build. It might sound obvious, but it’s a key mindset in the importance of young people learning financial literacy as early as possible. For example, if a 16-year-old invests an initial $500 and contributes $100 per month, they could have saved nearly $50,000 by the time they’re 40, based on a 4% interest rate.²

Similarly to budgeting, the initial concept of saving money can be introduced in childhood with small amounts such as birthday money. As they grow older, teaching young people about emergency funds, compound interest, and investment strategies helps them grow their wealth over time. Understanding how to save and invest allows them to take advantage of financial opportunities, positioning them to start adulthood strong and maintain that momentum throughout their lives.

3. Helps Avoid Debt and Credit Pitfalls

Credit cards and student loans can easily become financial traps without the knowledge and skills to handle them appropriately. Many young adults accumulate significant debt because they don’t understand interest rates, minimum payments, or the consequences of missing payments. At the same time, avoiding credit entirely due to fear and ignorance can also become a major stumbling block in life, if they are rejected from renting an apartment or buying a home because of a lack of credit history.

Financial literacy empowers a young person to make informed choices about borrowing money, using credit responsibly, and understanding how debt affects their financial future. In the short-term, it helps them attain independence and move forward in adulthood without setting themselves up for financial pains in the long-term.

4. Improves Decision-Making and Financial Independence

The confidence that teens and young adults are provided by financial literacy extends beyond credit and debt. Understanding financial concepts can inform not only major purchases, but life-altering decisions such as whether or not to pursue higher education, where to attend college, choice of career, and where to live.

On top of that, without the anxiety of financial stress or unmanaged debt, a young person can more easily follow their passions, engage in hobbies, travel, and spend their time in a way they find fulfilling.

5. Prepares for Long-Term Financial Goals

Whether buying a home, starting a business, or strategizing for retirement, financial literacy helps young people set and achieve long-term financial goals. Knowing how to budget, save, and invest ensures they can build a solid financial foundation for future success.

Even if they’re unsure how to specifically manage their finances, a financially literate young adult who has the vocabulary and foundational skills can feel more secure when discussing their goals with a financial professional.

Financial literacy is more than learning how to handle money; it’s about taking control of your financial future. By equipping teens and young adults with essential financial knowledge, we can help them avoid common financial pitfalls and set them up for lifelong success. Investing in financial education early on is one of the best ways to create a financially responsible and empowered generation.