Here are five money myths that I—and likely you—believed well into young adulthood. Plus, what parents can do to bust these myths for good and teach their kids how personal finance really works.

By Ashley Zlatopolsky
April 23, 2021
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I'll never forget sitting on the phone at one of my first jobs, helplessly arguing with a customer service representative over the growing amount on my credit card statement. I claimed I was being overcharged as the rep explained to me over and over, slowly growing irritable, that because my credit card statement balance wasn't paid off in full, I was being charged interest.

This was news to me. At the time, I didn't even know what the word "interest" meant—let alone most other tidbits of personal finance information that nearly everyone will encounter at some point in their lives. Mortgages? Emergency funds? I don't know them. Like far too many other young adults, these concepts had never crossed my mind.

Yet, as I grew up, I realized how crucial it was to have a good grasp of personal finance from a young age. By understanding the ins and outs of money, even a teen can embark on the path to financial success and stability later on in life.

Here are five money myths that I—and likely you—believed well into young adulthood. Plus, what parents can do to bust these myths for good and teach their kids how personal finance really works.

Myth #1: "A Credit Card is Just Like a Bank Account"

Except it's not. I was spending and spending on my credit card, thinking I could simply pay off charges at my own leisure. However, credit cards let you borrow money—and that money isn't just there for the taking. If it's not repaid, you'll end up having to pay even more money as your interest grows. For teens and young adults, the last thing they really want is to have extra bills to pay (hello, student loans!).

One way to alleviate this myth is to offer kids a crash course in credit cards, and to explain that there are two ways to pay off credit card debt. The first option is to pay off the statement balance in full; this option doesn't accrue interest. The second option is paying the minimum due, or any installment lower than the statement balance—with the understanding that the remaining balance will "charge you extra" the longer it is left unpaid.

Consider teaching this to teens or young adults a few months ahead of getting their first credit card. Then, you can walk them through their first few payments (and purchases) until they get a hang of how credit card interest really works.

Myth #2: "Saving Money Happens Naturally"

False. It's not like one day you'll wake up retired with half a million dollars in your bank account ready to go. Building wealth stems from proper budgeting and sound money-saving strategies. The best rule of thumb? Spend less than you earn.

Of course, for teens, this wisdom only goes so far if they simply don't want to hear it. For young people making their first big choices in life, it's easy to splurge on an expensive trip or shopping spree without thinking twice about how that purchase will fit into your income. It's just as easy to brush it off and think, "I can save next time." But building good budgeting habits can start with the examples we see around us. So, try involving your teens in family budgeting sessions. Share possible budgeting guidelines like the 50/30/20 rule of thumb, which allots 50% of income to "needs," 30% to "wants," and 20% to financial goals. You can even create a visual pie chart that shows your children how each sector works.

Myth #3: "I Don't Need An Emergency Fund"

You'll be surprised what kinds of things can happen during adolescence and young adulthood that the majority of people never prepare for. Medical expenses, car repairs, and job loss are only a handful of scenarios that can occur at any age. When you're young, it's common to feel invincible (raise your hand if you've ever thought, that will never happen to me and were later proven wrong).

Life happens without notice, whether you're 18 or 80. That's why putting away money for an emergency fund at a young age can help provide a cushion for those unexpected moments. For parents setting up first-time bank accounts for their kids, consider opening a separate savings account that will serve as a place to dip into should an emergency occur.

Explain to your teens or young adults that while they save money, it's important to allocate some of those savings into their "emergency folder" in the event that life throws a curveball, especially at an age when they are first starting to make their own money.

Myth #4: "I'm Too Young to Save for Retirement"

Even if you don't yet have a 401(k), IRA or similar retirement savings plan, it doesn't mean you're too young to begin thinking about the future. As with the idea of saving money overall, it's easy to fall under the impression that retirement is something you worry about later, or that savings will happen over time.

While the latter is somewhat true, it's only possible if you have the right plan in place. A great way to think about retirement is that the more you save early on, the more wealth you'll build up by the time you're actually ready to retire—making your future that much more secure. Explain to your kids that whether someone is tucking away $50 per month or $500, they should start saving for retirement when they can. That means putting the money into an account they won't pull from until they're ready to open a proper retirement savings plan.

As with an emergency fund, parents can help young adults get the ball rolling on retirement savings by including this lesson in overall personal finance talks. Parents can also show kids how their own retirement savings are going. Of course, no one expects teenagers to think about retirement on their own; still, it's smart to start planning by your 20s to help create a stable foundation.

Myth #5: "Mortgages Are Basically Rent"

One thing I wish I knew when I was a teen is the fact that mortgages are in no way, shape, or form anything like rent. This knowledge would have prevented me from paying absurd amounts of money to rent homes when I could have instead channeled that money into an investment. Sure, being a homeowner comes with more responsibilities (like when your furnace goes out and there's no landlord to pay for the replacement), but it also gives you an opportunity to invest in your space and build equity.

While having a mortgage still requires paying money each month to shave off your home loan balance (unless, of course, you're lucky enough to buy a home in cash), that money doesn't just go into the void. Instead, it goes back into your pocket. If you plan on staying in your home long-term, you can eventually pay it off and own it, or sell it for a higher price than you bought it for.

This is not typically something teens or 20-somethings leaving the nest think about often. They're probably not planning to buy and own a home at the age of 21 (if they are, more power to them!). But as kids you grow into their mid- to late 20s, investments could start becoming more and more appealing (especially if they live in an area where rent prices constantly hike up each year).

Taking time early on to educate your teen on the differences between mortgages and rent and which one is right for which needs can prepare them to make more strategic housing choices down the line. Parents can help build this knowledge by explaining to young adults how mortgages work and what to read up on ahead of time—from property taxes to homeowners' insurance.