10 Essential Financial Lessons for High School Graduates: Prepare for Your Future Now
1. Understanding Needs vs. Wants
Needs are essentials required to live and function, such as food, shelter, and transportation. Wants are things that enhance our lives but aren't essential for survival, like the latest smartphone or new clothes.
Think of your finances as a garden. Your needs are the water and sunlight necessary for your plants (your financial goals) to grow. Wants are like the decorative ornaments - nice to have but not essential for the garden's health.
Understanding this concept early on empowers you to make smart spending choices. It ensures you can cover your needs and save for the future. Knowing the difference will help set the foundation for a lifetime of balanced financial well-being.
Example: Imagine you've just received your first paycheck from a part-time job. You're tempted to spend it on a concert ticket, a want. However, you also need to buy textbooks for uni. Deciding to buy the textbooks first ensures you're investing in your education, a critical need. Setting aside a little each week could eventually fund that concert ticket. This balances both needs and wants.
2. Mastering the Art of Budgeting
Budgeting is the art of mapping out your finances. It ensures your spending aligns with your priorities and goals. It involves tracking your income and expenses to create a plan that helps you live within your means and save for the future.
Imagine your finances as a road trip across New Zealand. Your budget is the map that guides you. It ensures you have enough income. This income lets you reach your destination without overspending and getting stranded.
Learning to budget before high school prepares you for adult finances. It teaches you to manage your resources wisely, ensuring you can meet your needs, handle unexpected expenses, and save for your dreams.
Example: Suppose you're saving for a trip to Queenstown. Creating a budget shows how much you must save each week. It considers your income from a weekend job and regular expenses, like phone bills. This plan enables you to reach your goal systematically, ensuring you don't miss out on the adventure due to financial oversight.
Learn more about budgeting within our 101 guide.
3. The Power of Saving
Saving is setting aside some of your income for the future. This is for emergencies, large purchases, or long-term goals like retirement.
Consider saving as planting kūmara in your backyard. Just as kūmara needs time to grow before you can harvest, the money you save grows over time, providing you with greater financial security and freedom in the future.
Developing a habit of saving early in life instills financial discipline and foresight, crucial traits for navigating life's ups and downs. It ensures you're prepared for unexpected expenses and future opportunities.
Example: Imagine you've been eyeing a new laptop for uni. Instead of buying it on credit, you decide to save a portion of your earnings from a summer job. After a few months, you've saved enough to buy the laptop outright. You avoided interest charges and gained a sense of achievement from your discipline and planning.
Learn more about saving within our 101 guide.
4. Banking Basics for Beginners
As you grow up, banking is crucial. It's key not just for managing money but for handling life's financial demands. Picture your banking tools as essentials in a rugby game. Your bank accounts are the forward pack. They provide a sturdy base for financial growth. Debit cards are the agile backs. They enable quick and flexible transactions.
For high school leavers, banking extends beyond simple deposits and withdrawals. When picking accounts, go for those for young adults. They cut fees and add convenience. Though savings' rates seem small, they grow your funds, even passively.
In today's digital age, knowing online and mobile banking is vital. They give you great control over your money. You can pay bills instantly and track spending in real-time. Yet, you must also prioritise cybersecurity. It's crucial to bank online safely. Use strong passwords and enable two-factor authentication.
Embracing these banking basics helps you manage your money well. It also prepares you for a responsible financial future. It's about making informed choices. That means avoiding unnecessary fees and using technology for smarter money management. As you step into this new chapter, knowing banking basics will ensure you're not just playing the game of personal finance. You'll be winning it.
Example: Consider you've landed your first job and receive your pay directly into your checking account. With a debit card, you have instant access to these funds for daily expenses. Meanwhile, your savings account grows quietly. Each deposit you make from your earnings secures your financial future.
5. Understanding Tax in New Zealand: Income Tax and GST
In New Zealand, like in many countries, taxes are an essential part of the economy, funding public services and infrastructure. Two common types of tax you'll encounter are income tax and Goods and Services Tax (GST).
Think of New Zealand's economy as a shared garden. For it to thrive, everyone contributes something. Income tax is like the water each gardener provides, varying in amount according to the size of their plot. GST, on the other hand, is like a small contribution of seeds or fertilizer every time someone adds a new plant to the garden. Together, these contributions help the garden flourish, benefiting everyone.
Understanding taxes before stepping into adulthood demystifies a significant part of financial life. It prepares you for the responsibilities that come with earning and spending, ensuring you can navigate your fiscal obligations confidently.
Income Tax
Starting your first full-time job at a local café, you earn an income. The government taxes your earnings to support healthcare, education, and infrastructure. The tax rate increases with higher earnings, like watering a bigger garden.
GST
When buying a new laptop, the price includes a 15% GST, a standard rate in New Zealand. This tax supports public services and goods in the country. It's like adding a plant to a garden; you help it grow. Taxes are how the government gets money for services. They cover roads, schools, and national defense. Without taxes, these essential services wouldn't exist. Paying taxes is crucial for the country's well-being. It's not just a duty; it's a community effort. By paying your fair share, you invest in the future.
6. Navigating the World of Debt
Debt is a financial tool that, when used wisely, can help you achieve your goals. However, it's crucial to understand the difference between good debt and bad debt. Good debt can grow your net worth or income over time. Bad debt lacks future financial benefits.
Imagine debt as a double-edged taiaha (a traditional Māori weapon). Handled with skill and respect, it can be a powerful tool to support your goals, like education or a home. But wielded carelessly, it can lead to financial harm.
An early understanding of debt management can prevent financial pitfalls and stress in the future. It's about knowing when to leverage debt to your advantage and when to avoid it, ensuring your financial well-being.
Example: Imagine taking out a student loan to pursue a degree at uni. This is considered good debt because it invests in your education, potentially leading to better job prospects and income. Using a credit card to buy a high-end smartphone without the ability to pay it off right away can lead to bad debt. It will also lead to interest and financial strain.
7. KiwiSaver: Investing in Your Future
KiwiSaver is New Zealand's voluntary savings initiative. It is based on work and is designed to help you save for retirement. It's not just a savings account; it's an investment in your future self.
Think of KiwiSaver as planting a native New Zealand tree, like a Kauri, in your backyard. Initially, it's just a sapling. But, with regular care and time, it grows into a towering, sturdy tree. It provides shade and shelter in your later years.
Starting KiwiSaver as a teenager can greatly impact your retirement finances. It's like compound interest; the earlier you start, the more your investment grows, ensuring a more comfortable and secure future.
Example: Imagine you start contributing to KiwiSaver at 18, with just a small percentage of your part-time job's income. By the time you reach retirement age, those contributions will be matched by your employer and topped up by government. They could grow into a big nest egg. This will happen thanks to compound interest and long-term investment growth.
8. Avoiding Financial Scams
Today's digital age has seen a rise in sophisticated financial scams. They target unsuspecting individuals to steal money or personal information. Awareness and vigilance are key to protecting yourself.
Consider your financial security as a fortress. Scammers are like invaders trying to breach the walls. Your knowledge and caution are the defences that keep the invaders at bay, safeguarding your treasures within.
Note why it's important for young people to learn before leaving high school:
Young people are often seen as easy targets by scammers due to their lack of experience. Learning about common scams and protective measures can fortify your defences. It will keep your finances and personal information secure.
Example: You receive an email claiming you've won a large sum of money in a lottery you never entered. It asks for personal details and a small fee to release the winnings. Recognising this as a classic scam scenario, you wisely ignore the email, keeping your personal information and money safe.
9. Utilising Financial Resources
The web has a wealth of financial resources. They can empower you to make informed decisions and grow your financial knowledge. They include beginner guides and in-depth analyses on many topics.
Navigating the world of personal finance can feel like setting sail on the vast ocean. Online resources act as your compass and map, guiding your journey and helping you navigate through the waters safely.
Building a habit of seeking out reliable financial information prepares you for the complexities of the adult financial world. It's about becoming a lifelong learner and continuously enhancing your financial literacy.
Example: Before opening your first savings account, you dive into online resources, comparing different banks' offerings, interest rates, and fees. This research helps you choose an account that best suits your needs, maximizing your savings potential.
10. Making Smart Financial Decisions
To make smart money choices, know your complete financial picture. Research, compare, and understand before committing. Deciding on finances is like picking a path in the woods. Without a map (knowledge) and clear goals, you'll get lost.
Start early to learn how to make wise money calls. It helps in assessing risks, and choosing well for you.
Example: Before buying your first car, compare models for efficiency. Check insurance costs, reliability, and payment options. Make a choice that fits your needs and goals.
The road to financial literacy starts with knowing the basics. You need to distinguish between needs and wants. You also need to master budgeting, saving, and navigating banking, debt, and credit scores. Each step is crucial for a solid financial foundation. Starting your KiwiSaver contributions early is important. Staying vigilant against financial scams and using valuable online resources are also key. Making informed financial decisions is not just a strategy but an essential practice for a secure financial future.
Remember, these lessons are more than guidelines. They're the building blocks for a life of financial freedom and security. You stand on the brink of adulthood. You have this knowledge. You're not just getting ready to manage your finances. You're setting the stage for a future where your financial dreams and goals are within reach.
So, to every young New Zealander about to step out of high school, take these lessons to heart. Let them guide your financial decisions and shape your approach to money management. The habits you form now will pave the way for a future where financial stability isn't just a goal, but a reality. Embrace these lessons, and step confidently into the next chapter of your life, ready to take on the world, one informed financial decision at a time.
