Beginning financial planning terminology
Understanding financial terms will help with your financial planning.
Many times, youth think of the words “financial planning” as being scary and overwhelming. The National Endowment for Financial Education (NEFE) High School Financial Planning Program (HSFPP) breaks financial planning into simple steps.
According to HSFPP, financial planning is a process of setting goals, developing a plan to achieve them and putting the plan into action. Before beginning the financial planning process there are many terms the youth need to understand.
The youth first must be able to determine the difference between needs and wants. Needs are the basic items that are needed to survive. Wants are things that are not needed to survive but items that we may like to have. Your values, the beliefs and practices in your life that are important to you may shape what you consider needs versus a want. Values may vary from one person to another. While clothes are a need, the type and quantity of clothes purchased can be a want.
Another important financial term relates to goals which is defined as something that you are aiming for. Goals can be broken into three time periods. Short-term goals are goals you can achieve within the next three months. Goals that can be accomplished between three months and one year are intermediate-term goals. Finally, long-term goals are goals that are going to take longer than a year to complete.
When a youth sets a financial goal no matter if it is a short, intermediate or long term goal, it needs to be a SMART goal. A SMART goal is specific, measurable, attainable, realistic and time bound. Some examples of SMART goals are:
- Short-term - Saving $5 a week for the next month to have money to buy a present for my mom’s birthday.
- Intermediate-term: Saving $10 a week for the next nine months to purchase a dress and ticket for prom.
- Long-term: Saving $1,500 from my summer job for a down payment on a used car so my payments are affordable each month.
These terms are only just the beginning in financial planning. NEFE HSFPP has seven units that will assist youth in understanding more related to financial planning. More information on financial management for youth can be found on the MI 4-H Money Management website and MI Money Health.