# Financial Literacy for High School Students

Instructor: Sharon Linde
Financial literacy is an important skill, but when should it be taught? In high school, students have jobs and make money, so they need money skills. This lesson defines financial literacy and looks at some ways to teach it to high school students.

## What Is Financial Literacy?

Meet Buddy Jett, a high school senior just about to graduate. Buddy needs to learn some basic financial skills to understand how money works, or have financial literacy. There are three key things he'll need to prepare for college and the workforce: budgeting, taxes, and interest calculations. Budgeting will be the most important tool for Buddy's future financial success, but we need to cover a few other topics before we can get to that discussion.

## Taxes

We've all heard Benjamin Franklin's famous quote, 'In this world nothing can be said to be certain, except death and taxes.' Ben's quote is true because governments need money to be able to function. Where you live and work makes a difference in how much and what kind of taxes you will pay. Taxes can be very complicated, even for a smarty like Buddy. He'll focus on the two most common types of taxes: income and sales tax.

Sales Tax

Sales taxes are paid on items you buy. So, if Buddy wants to buy the latest gaming console that has a price tag of \$400.00, and he lives in an area that has an 8% sales tax, he'll actually need to shell out the price tag plus the \$32.00 of sales tax (\$400 x .08), for a total of \$432.00

Income Tax

But wait, there's more. Buddy has a job and has to pay income taxes, probably 10% of his income. How much would Buddy have to earn to be able to afford the \$400.00 game console? We know from the sales tax discussion above it's at least \$432.00, and now we also have to account for the 10% income tax. Buddy takes out his pencil, writes a math equation from algebra, and comes up with \$480.00. Yikes!

Buddy is learning about how to apply tax information to be able to make important buying decisions. For example, if Buddy has a job that pays \$10.00 an hour and works eight hours a day, he can calculate that it will take six days of work to pay for his gaming habit - and that doesn't even include the cost of any games!

\$10.00 x 8 = \$80.00 \$80.00 x 6 = \$480.00

## Interest

Buddy's getting a taste for how hard the real world can be, so his teacher gives him some good news - interest! What if Buddy could turn that \$432.00 into more than \$2,500.00 in a completely legal way? The key is compound interest. If he is able to resist spending his hard-earned money on the game system, he can invest it and make money.

But interest isn't all good news - it works the other way too. What if Buddy wanted to take out a loan to buy the game system? How much would he pay, in interest, if he borrowed \$500.00? Even a low 2% interest compounded monthly will end up at around \$634.00.

Did you catch the sleight of hand that loan companies often use? A 2% interest rate isn't that much, right? Well, it is if it's compounded. That ends up being nearly 27% on an annual basis! Now Buddy knows to avoid loans unless he has no other choice. Like our friend Benjamin says, 'A penny saved is a penny earned'.

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