Making money is not that hard; you just need to learn how to do it. At this point in your life, you must acquire a foundational understanding of financial concepts and become better educated about the financial world to get wealthy.
Financial concepts are crucial because they influence our choices and shape our future. How does money work? How does inflation occur, and what leads to it? How do you overcome it? The earlier you look into those concepts, the richer and more successful you will be later on.
Do you recall when you had to choose between saving money for a concert ticket and purchasing a new MacBook? That is what budgeting is all about!
Making smart financial decisions, setting priorities for your goals, and making plans to achieve your desires — that’s all you will require to make (and stick to) your budget.
Budgeting isn’t just about placing restrictions on yourself; it’s about giving yourself the financial expertise and confidence to accomplish your goals.
People learn various life skills as they grow from childhood into adulthood. But unfortunately, proper money management is often overlooked. A crucial life skill to develop early is financial literacy.
The ability to earn, invest, spend, and manage money wisely will contribute to your stability and overall well-being.
According to Booth, teen author of “A Rich Future: Essential Financial Concepts for Youth,” there are few resources on financial literacy (like books) available for young people (Booth, 2022). So, few understand what money management is about. And they have no resources from which to gain this information (Booth, 2022).
Being financially literate and wise with your money gives you a significant advantage in life from a young age.
Understanding Financial Literacy
Financial literacy is the ability to understand and utilize different financial skills, such as financial management, budgeting, and investing money (RBC Wealth Management, 2020).
When you are financially well-educated, your relationship with money is built on a solid foundation. And while you can make better financial decisions once you master these financial concepts and tools, it can take a lifetime of learning to perfect the art of earning and managing money.
Understanding the facts and figures about money is crucial. You will achieve financial literacy when you start to understand the right way to spend and manage your money. Let’s see why financial literacy helps fulfill your dreams and what benefits you can get from it.
Money is more than just the green paper in your wallet. It is a tool you can use to get almost anything you want. You can access all kinds of lovely things with the help of money. And you’re probably all eager to go and earn some cash — but hold on.
You haven’t heard about inflation yet. It’s a sneaky monster that we’ll cover in detail later on. Inflation reduces the power of your money — it won’t purchase as much as it once could if the prices keep rising. So, if you save $10 now, it might not be enough (in a year or two) to purchase your preferred game.
But young money masters, do not worry! Financial literacy also encompasses investing. By investing, you allow your money to increase in value and keep pace with inflation.
It’s like planting a money tree that gets bigger and bigger over time. Your money will have more time to develop, and you’ll become richer if you start investing early.
Being financially literate also means you can start building your dreams from an early age. Imagine having the ability to save up for a dream vacation, fund a business, or even buy your first car. Financial literacy gives you the tools to turn your dreams into reality.
Moreover, it prepares you for life’s surprises. You’ll understand how insurance works, the significance of an emergency fund, and how to secure yourself from financial troubles. Being well-prepared means that you can face any challenge with confidence.
Financial literacy helps plan for your goals, avoid bad debt, and lay a strong foundation for a safe and wealthy future. It’s like possessing a superpower that enables you to make wise decisions and avoid typical financial mistakes. So, don’t ignore your financial situation.
Accept the power of financial concepts and set out on a path to success and freedom from debt. You’ll cherish it in the future! So, how does it work?
Money: A Magical Tool
What exactly is money? I know you know what it looks like. It comes in the form of paper (banknotes), metal (coins), and now, even plastic (debit and credit cards).
Money is the tool we use today to exchange for other things we need, like food, clothes, shoes, etc. Not too long ago, before money existed as a central medium of exchange, people used to barter.
They would trade what they already had for what they wanted from someone else (and you’ve probably done this at school with a friend). Today, money (which we earn from our jobs or a business) exists to help us buy what we need or want.
Consider money your dependable companion while you pursue financial independence. You can overcome financial challenges in the same way that Iron Man takes on Obadiah Stane.
You can put your money to work for you if you learn the art of budgeting, saving, and investing. It’s like evolving from an ordinary person into a financial superhuman.
Have you heard about real money heroes? They are people who have accomplished amazing things by using their financial skills.
Consider Warren Buffett, an expert investor who transformed a small amount of cash into billions. Or Oprah Winfrey, who made a difference by using her financial success to benefit charitable organizations.
These financial role models show us that, with the right mindset, we can achieve incredible things and motivate others to do the same.
How Does Money Work?
The fascinating thing that keeps the world running is money, my friend! I’m sure you understand the basic give-and-take of money: you offer it and (in turn) get something you want. But why does a piece of paper have this kind of value? Let me explain how money works.
Money’s Influence
The most important player in the game of life is money. It is the key that unlocks possibilities and makes things happen.
Money offers you the ability to fulfill your dreams (like in video games, where you collect coins to unlock power-ups and advance through the levels).
The Language of Exchange
Think of money as a universal magical language. It serves as a platform for trade and service exchange. Say you want to purchase a delicious pizza.
You pay the money, and they give you a cheesy, tasty pizza in return. What you want — and what other people can provide you — is conveyed by money.
The Dance of Supply and Demand
Demand is how many people want a thing. For example, your wanting the new iPhone creates demand for it — and you’re not the only one.
Supply is how much a product is available for people to purchase (in this case, how many iPhones are available). Where does the problem occur? When demand exceeds supply (i.e., 1,000 people want the iPhone, and there are only 700 to go around).
Have you ever wondered why some goods cost more than others? Well, that’s because supply and demand dance with each other.
The cost of anything increases when it is rare or in high demand. But if anything is abundant, its price may decrease. Consider it like searching for rare video game items — those are usually worth more!
The Journey of Money
The journey of money is fascinating. It begins at a place known as a bank, where it is created and kept. Money is stored in banks until people need it.
When money is deposited in a bank, the bank can lend it to people who require it to launch businesses, purchase homes, or pursue their goals.
The Money Musketeers: Saving, Spending, and Sharing
Money’s three devoted companions are spending, saving, and giving. Saving is the act of laying money aside for future use. It’s like creating a treasure chest for future adventures. Using your money wisely on things you want and need is the key to spending.
Sharing is the magical act of utilizing your money to improve the lives of others, whether through charitable donations or lending a hand to a friend in need.
What Is the Market?
You’ve probably been to the market many times in your life. But what is it exactly? When you go shopping, you exchange your money for goods or services.
This kind of exchange is the basis of what a market is. It’s where money exchanges hands in return for something else. And this doesn’t necessarily have to be a physical market. It can exist online, with the exchange happening through online transfers.
This market is made possible with the existence of other products. Money, for example, is important to allow markets where exchange can occur to exist.
To help handle and manage money, you need other institutions, such as banks. They are responsible for helping you get access to your money — and even for managing how much money is floating around in the market at any given time.
Unlocking the Financial Concepts: The Power of Banks
The Bank is not just a boring place full of suits. It’s a building where magic occurs! Let’s explore the fascinating world of banking and learn why it’s so crucial.
Safekeeping Your Money
A bank is the first place to which you should entrust your money. They offer protection for your precious coins and cash. It’s like a personal vault where your assets are guarded 24 hours a day. If you deposit your assets there, the bank will safely hold your money until you need it.
No more stressing over losing your lunch money or having it unintentionally washed in the laundry!
Bank Accounts
But there’s more! Banks also provide a wide range of services. Opening a bank account is one of the coolest. It’s like having a private hideout inside the stronghold of the bank.
With a bank account, you can conveniently keep track of your transactions, save your money, and earn interest (free money!). Being able to manage your money with ease is like having a superpower.
Deposits and Withdrawals
Making a deposit is like adding money to a virtual piggy bank. Your bank account balance increases when you make a deposit, which is known as a transaction.
Besides receiving electronic transfers, you can also deposit cash and checks. Making a withdrawal, on the other hand, is like taking money out of your piggy bank.
You can visit a bank or use an ATM to withdraw money whenever you need it from your account.
Interest: The Magical Bonus
Interest can be a cost to you if you are a borrower. It is a fee charged according to the amount of money you borrow. The interest itself is usually a small percentage of what you have borrowed.
On a loan of $10,000, 7% interest would be $700. So, the total amount you would owe would become $10,700. When you borrow money from a bank (for whatever reason), you will likely be charged an interest rate, which you have to pay on top of what you borrowed (hence why you should seek lower interest rates).
If you save your money in a bank account, interest will be offered to you as a reward. It gives you a reason to keep your money with that bank (rather than go somewhere else).
In this case, whatever percentage of interest you get on your money is what you get to keep. So, if you started with $1,000 in your savings account and got 6.5% interest on that, you would end up with $1065 in your account (without putting more money in it)! As a reward for savings, interest can be a great tool.
Loans: Granting Wishes
Through loans, banks have the power to grant wishes. The bank will lend you money if you need it for an expensive purchase like a house or car.
When you take out a loan from a bank, they give you the cash you require in exchange for your promise to pay them back over time (typically with interest). If you manage the borrowed money responsibly, it’s like having a financial genie who can grant your wishes.
Contributing to the Economy
Banks are crucial to the economy and make significant contributions. By facilitating transactions between individuals, companies, and even other banks, they help maintain the smooth flow of money.
Banks also provide money to business owners so they can launch new ventures and hire people. Banks support economic expansion and stability by offering these financial services.
The Inflation Roller Coaster
Inflation is a term you have probably heard of (and in more than one context). You’ve probably heard people blame inflation for their difficulty in buying things (and even selling them).
You might even have heard others blame inflation for being unable to afford a vacation. It’s true that in times of inflation, all these things can become harder to afford. But what exactly is inflation?
Inflation Revealed: The Rising Prices
Inflation is when prices of goods and services increase. When this happens, the value of your money is said to fall because the same amount of money can now buy fewer things.
Things get more expensive, and it becomes harder to buy those things if your income does not increase.
Consider what you could buy with $5. Let’s say that one year, you can buy five chocolate bars with that money at $1 each.
The following year (due to inflation), the price of each chocolate bar increases from $1 to $1.20. Now, you can only get four chocolate bars for $4. Inflation (a price increase) occurred, lowering the value of your money (which now buys four instead of five chocolates).
What Causes Inflation?
The reasons behind the cause of inflation are a bit complex. It occurs because of many economic reasons all working together, causing prices to increase. However, we can simplify these concepts to understand how inflation happens.
The common reasons behind inflation include:
● The demand-supply factor: Demand and supply are the market forces that determine what price will be charged for something. In the above example, too many people wanted an iPhone, and there were not enough of them to sell one to everyone who wanted one. In that case, prices would increase because the demand is high, but the supply is limited.
● Cost of production: Many costs go into making a product (wages, raw materials) or offering a service. When those costs increase, you must also pay higher prices for the finished goods. The price of one thing is linked to another. For example, if wheat becomes more expensive, so does bread made with wheat flour.
● Economic factors: When the economy starts to grow and prosper, people have more money. This means they have more to spend and can buy more things. Demand increases, and we come back to the demand-supply circle. More people can buy something that is in limited supply. So, the price goes up.
When an excessive amount of money is floating around, inflation can occur. This is also why we can’t fix poverty by printing and distributing more money. With an increased money supply, people can buy more. Except — and this is important — the supply of the things they want to buy is limited. Prices then soar, and we end up with inflation.
Dealing With Inflation
So, we’ve figured out that inflation is bad. Let’s say you may have more money right now than you did last year, but inflation has also increased.
Imagine that you’ve got 20% more money now, but inflation has increased 40% more. That means that, although you have more money, you can buy fewer things. So, how do you deal with inflation without losing all your money on increasingly expensive things?
Savings: Your Best Defense Against Inflation
You must become a saving superhero to keep inflation from grabbing your money! Saving money is like creating a defense against price increases.
You can protect your allowance from the effects of inflation by putting it in a bank account (a wise decision that guarantees the security of your finances).
Investing: Level Up Your Financial Game
You’re prepared to step up your financial game. When you invest, you put your money to work and help it grow faster than the inflation rate. It’s like increasing a video game character’s stats; your money becomes an impressive opponent!
Taming Inflation: Smart Strategies for Teens
There are many strategies to fortify your financial castle, from sensible budgeting to looking for offers and discounts. Harness the power of saving and investing, stay educated about the economy, and spend wisely.
Inflation can be tiring, but you can avoid its twists and turns by being well-informed and employing sensible techniques.
Save your money, make smart investments, and remain observant. Let the power of money magic be your guide, and you will always triumph over increasing prices with a smile.
Get To Know Your Taxes
We’re about to reveal the secrets of taxes in a way that will have you saying, “Whoa, taxes can be cool?” Imagine an enormous city with outstanding facilities like parks, schools, and libraries.
Who covers the cost of all this awesomeness? Taxes are relevant in this situation. Taxes are the yearly dues we pay to belong to a thriving community.
Imagine that you are in a fantastic theme park filled with exhilarating rides and amazing attractions. But how does the park continue to be so enjoyable and maintain order? Money! The same is true with taxes.
They help fund critical public services like road construction, park maintenance, and healthcare and education.
There is no one-size-fits-all strategy for handling taxes. Just like your preferred ice cream, they come in various flavors! There is income tax, which is deducted from your earnings.
Sales tax is like a little extra fee that is added on top of everything you buy. A charge based on the value of the place you call home is called property tax.
Taxes may feel like money draining from your wallet. But they are incredibly important to creating and maintaining the environment we live in.
They provide funding for the facilities, projects, and services that make our neighborhoods fantastic places to live.
Since we’ve already covered all the ways you might be spending your money, let’s move on to how you can save it. Money management — and financial literacy — are all about knowing what you’re supposed to do with your money. That’s where budgeting comes in.
