Understanding how money works is a mandatory life skill. Financial literacy refers to the ability to manage personal finances effectively, which involves knowing how to save, invest, budget, and avoid debt traps. In today’s blog, we’ll explore what financial literacy means for high school students, what makes it so important, and some relatively easy ways to start building your financial skills today.

What is financial literacy?

Financial literacy is the ability to understand and effectively manage your personal finances, understand debt, budget, and invest. It’s a catch-all term that encompasses several distinct topics like banking, loans, interest rates, credit scores, and how these things impact financial well-being. People who are financially literate can make more informed decisions about their money and plan for a secure future.

Why should high schoolers care about financial literacy?

For a high schooler, financial literacy means being equipped with the skills and knowledge to handle money responsibly. While many high schoolers may not yet have regular expenses like rent or bills, they still engage in financial activities such as managing allowances, part-time job earnings, or saving for college. Learning how to manage money early on provides a foundation for future financial independence.

Financial literacy can quite literally shape your future. Learning these skills in high school means you’ll be better prepared to handle adult responsibilities such as budgeting, paying for education, and eventually managing a salary. It can also help you avoid common financial pitfalls, like accumulating unnecessary debt. Financially literate students can make smarter decisions about saving, spending, and investing, leading to greater long-term success.

10 ways to build financial literacy as a high school student

1. Create a budget

Budgeting is one of the most important steps in building financial literacy. As a high school student, your income might come from allowances, part-time jobs, or even gifts, and the sooner you learn how to allocate this money effectively, the better off you’ll be. A budget gives you control over your money by helping you track both your income and expenses. Start by listing all your monthly earnings and categorize your expenses into necessary (such as school supplies, transport, or savings) and discretionary spending (such as entertainment or snacks). Once you see where your money is going, you can prioritize your spending, ensuring that you save or invest a portion each month.

To help you manage this process, apps like Mint or You Need a Budget (YNAB) provide digital tools to set up budgets, track expenses, and set savings goals. Budgeting is mostly a matter of habit, and these apps facilitate it, providing you insights into your spending habits and helping you develop long-term financial planning skills. These tools can also sync with your bank accounts, making it easier to monitor your finances in real-time.

2. Open a savings account

Opening a savings account is a practical way to start managing your money effectively. It’s a great first step toward financial responsibility, as it teaches you how to manage your income and allows you to accumulate savings over time. Most banks offer student savings accounts that come with low or no monthly fees and require a small minimum balance. By depositing a portion of your earnings or allowance, you begin to build the habit of saving regularly, which is essential for achieving future financial goals, like saving for college or an emergency fund.

It’s important to research and compare different savings accounts to find the one that suits your needs. Some online banks and credit unions offer higher interest rates than traditional banks, which means your money can grow faster. For example, NerdWallet regularly updates lists of the best student savings accounts, allowing you to choose accounts with no hidden fees, good customer service, and high yields. This is an opportunity to learn about how interest works and how compounding can significantly increase your savings over time.

3. Understand how credit works

Credit plays a pivotal role in your financial future, affecting everything from your ability to borrow money to rent an apartment or secure certain jobs. Credit scores are a numerical reflection of your financial reliability, and understanding how they are calculated is crucial. While you may not have a credit card yet, learning about credit now can prevent costly mistakes in the future. Credit scores are determined by factors such as payment history, debt levels, and the length of credit history, so it’s essential to build good habits from the start.

As you begin to engage with credit, such as through a student credit card or by being added as an authorized user on a parent’s card, it’s vital to always pay your balance in full and on time. Websites like Credit Karma provide free resources that allow you to track and understand credit scores without actually applying for credit yourself. This knowledge can help you maintain good credit health, which will be valuable when you apply for loans or mortgages later in life.

4. Start a savings fund for college

Higher education is one of the most significant financial investments you will make, so starting to save for college early can reduce the financial burden later. A good way to do this is by opening a 529 savings plan, which offers tax advantages for educational expenses. Even if you’re only able to contribute a small amount each month, the power of compound interest means that your savings can grow significantly by the time you need them. Understanding how to make the most of these savings plans is a critical part of building financial literacy.

Additionally, you can familiarize yourself with different financial aid options like scholarships, grants, and work-study programs. You can also look into resources like the College Savings Plans Network to understand how 529 plans work and which ones may be best for your situation. Starting early means you’re better positioned to avoid taking out large student loans, and you’ll have a clearer picture of how to fund your education without accumulating excessive debt.

5. Learn about investing

Investing is a key way to build wealth over time, but it can be intimidating to get started. However, starting with basic concepts like stocks, bonds, and mutual funds can help you build your knowledge gradually. Investing teaches you how to grow your money beyond just saving it. For example, by investing in a diversified portfolio, your money can grow through compound returns over the long term, which helps protect against inflation and other economic factors.

For beginners, tools like MarketWatch Virtual Stock Exchange let you simulate investing in the stock market without real financial risk. This allows you to practice and learn from your mistakes before engaging with real money. Moreover, apps like Acorns allow you to start investing with small amounts of spare change, making it accessible to anyone. By starting early, you can learn about the power of compound growth, diversification, and long-term investing strategies, all of which are crucial elements of financial literacy.

6. Take a financial literacy course

Formal education can provide structure and depth to your financial literacy journey. If your school offers personal finance courses, make sure to enroll. But if not, there are plenty of online platforms that offer courses for high school students. Institutions like Lumiere Education, Veritas AI, and Horizon offer finance courses for high schoolers. Completing such a course gives you a competitive edge in managing your finances and prepares you for more complex financial situations as you enter adulthood.

7. Track your spending habits

Before you can effectively manage your money, you need to understand where it’s going. Keeping a daily or weekly log of your purchases, no matter how small, gives you a clear picture of your spending habits. Whether you’re buying snacks after school or saving up for a big purchase, tracking expenses can show you where your money tends to go and help you make adjustments to save more effectively.

You can use tools like Spendee or PocketGuard to automate this process. These apps categorize your expenses and show you patterns in your spending, making it easier to identify areas where you can cut back. Once you understand your habits, you can begin to set more intentional spending goals and avoid impulse purchases that might derail your budget. Tracking spending is a simple but powerful way to maintain control over your finances and build the discipline needed to manage larger amounts of money in the future.

8. Learn to do taxes

Even if you’re just working a part-time job, understanding taxes is essential. Taxes impact how much of your earnings you actually take home, and learning about federal, state, and local taxes will help you avoid confusion when you see your first paycheck. Learning how to read your pay stub will give you insight into how taxes affect your income and what deductions (such as Social Security and Medicare) are being taken out.

Free online tools like IRS Free File and TurboTax can walk you through the basics of filing taxes and understanding deductions. Even if you aren’t filing taxes yet, familiarizing yourself with these systems can prepare you for when you start working full-time. Taxes are an unavoidable part of financial life, and understanding them will prevent confusion and potential mistakes when you begin earning more income.

9. Start differentiating between needs and wants

Needs are essentials such as food, shelter, and education, while wants are things like entertainment, new gadgets, or designer clothes. Distinguishing between the two will help you make smarter spending choices. When you budget, always prioritize your needs first, then allocate money for savings, and finally, if there’s room left, for your wants. A helpful rule to follow is the 50/30/20 rule: 50% of your income should go to needs, 30% to wants, and 20% to savings or debt repayment. Tools like YNAB help you categorize your spending and ensure you are prioritizing your needs. This discipline will serve you well as you encounter more complex financial responsibilities in the future.

10. Start putting together an emergency fund

An emergency fund is a safety net that helps you cover unexpected expenses, like medical bills or car repairs, without going into debt. As a student, you may not have many financial responsibilities yet, but building this habit early ensures you’re prepared for life’s uncertainties. Even small contributions, such as a percentage of your allowance or earnings, can add up over time. Aim to set aside enough to cover at least three to six months' worth of expenses, which can help you stay financially stable during unexpected situations. Apps like Chime or Simple offer features like automated savings to make this process easier. Establishing an emergency fund is a crucial part of financial literacy, helping you avoid debt and stay financially secure when life throws you a curveball.

One other option — the Lumiere Research Scholar Program

If you’re interested in pursuing independent research, you could also consider applying to one of the Lumiere Research Scholar Programs, selective online high school programs for students founded with researchers at Harvard and Oxford. Last year, we had over 4,000 students apply for 500 spots in the program! You can find the application form here.

Also check out the Lumiere Research Inclusion Foundation, a non-profit research program for talented, low-income students. Last year, we had 150 students on full need-based financial aid!

Stephen is one of the founders of Lumiere and a Harvard College graduate. He founded Lumiere as a PhD student at Harvard Business School. Lumiere is a selective research program where students work 1-1 with a research mentor to develop an independent research paper.