Financial literacy is the ability to use knowledge and skills to make effective and informed money management decisions. Gaining the knowledge and developing the skills to become financially literate is a lifelong process that begins with something as simple as putting a few pennies in a piggy bank, and evolves to more advanced subjects such as risk and asset allocation.

Because financial literacy is not emphasized in the education system - less than half the states have any financial literacy requirements for grades K-12, and only four states require high school students to take personal finance classes - most kids lack the necessary knowledge and skills to become financially responsible adults. The President's Advisory Council on Financial Literacy wrote in its 2008 Annual Report to the President: "By almost any measure, today's schoolchildren are ill-equipped to understand personal finance and make their way in the modern financial world. Their rising debt and debt problems, along with their poor inclination to save, substantiate what the test scores show. Meanwhile, most students still graduate from high school without any formal classroom education in personal finance."

There is now - especially following the global financial crisis that began in 2008 - a growing interest in requiring more personal finance classes in the K-12 setting. Ben Bernanke, Chairman of the Federal Reserve System has stated that, "One of the key lessons of the recent financial crisis is the importance of personal financial literacy. Besides improving their personal financial decision making, teaching students economic principles will help them as citizens understand and make choices about many of the critical issues confronting our nation."

Despite this recognition, most things money are still taught at home, where the role of financial educator falls primarily on parents, guardians and other adults in the home. For many adults, however, talking about money is akin to talking about other provocative subjects. Unsure of where to begin and worried about saying the wrong thing, many adults simply avoid conversations about money. This is often made worse by adults' lack of confidence in their own handling of finances. It is important for adults to remember that, even if they are not financial rock stars themselves, they have experience and perspective on their sides, and can draw both from their financial mistakes and successes to share essential knowledge and skills to their children. It starts with a conversation.

In our first guide, Teaching Financial Literacy To Kids, we introduced concepts that are appropriate for the youngest learners, such as the difference between needs and wants. In part two of the series, Teaching Financial Literacy To Tweens, we covered intermediate topics, including income and expenses, saving for long-term goals and entrepreneurship. In this tutorial, designed especially for teaching teens, we introduce the more advanced topics suitable for teenagers, including budgeting, credit and debt, money management and investing.

Next: Teaching Financial Literacy To Teens: Making Money »


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