They may be top of their class, but many high school grads flunk this crucial subject

Time flies, and before you know it, your teen will be out in the world. Studies show that 75% of American teenagers lack confidence in their knowledge of personal finance. This lack of financial literacy can result in big mistakes that will follow them for years to come, like racking up debt or damaging their credit score.

Here are seven money concepts your teen should understand before leaving the nest to get started on the right foot.

Opportunity cost: Once you spend your money on something, it can’t be used for something else. Money is finite: When it’s gone, it’s gone. Help them understand the trade-offs of buying one item vs. saving the money for something else.

Delayed gratification: You can’t have everything you want the minute you want it. If you really want an item, make a plan to purchase it instead of buying on impulse or credit. Many young adults get trapped in the cycle of relying on credit cards to fund their lifestyle.

Save at least a dime for every dollar you earn: It is good to get in the habit of saving every time you earn money. Money is a tool to live well today, but also plan for the future. Adults who save 10% to 20% of their income are much better positioned to handle emergency expenses, live within their means and are setting themselves up for flexibility in the future. Some savings is short term, like saving up for a vacation or car, and some savings is longer term, like for retirement.

The power of compound interest: If you forgo a purchase today and save or invest that money instead, your money will start earning interest. Compound interest is when you earn interest on both the money you save and the interest you’ve already earned. If they are earning income, you may consider setting up a Roth IRA for them and talking about basic investment concepts so they can get some hands-on experience in watching their money grow.

Credit cards can be a tool or can be dangerous: Your teens are likely to see you using credit and debit cards but may not understand how to manage them. They need to understand that using a credit card is really like a loan, and if you don’t pay it off every month, you’ll end up paying more for the item than it actually costs. Once they are 18, they can get a credit card without you knowing it. Make sure you have these conversations before it becomes an issue.

The concept of taxes: Many young adults are blindsided by taxes being withheld from their earnings when their first paycheck is much smaller than expected. If they are doing “gig” work or contract work, they need to be planning for taxes all year long. Explain what taxes pay for in your community.

The importance of having an emergency fund: Not having an emergency fund is one of the biggest landmines young adults face. Life is full of surprises — pleasant and unpleasant. Studies show that 56% of Americans would have trouble covering a $1,000 emergency expense. When there’s no emergency fund, debt is used as a band-aid and impacts one’s ability to spend future income.

Kids can understand basic money concepts as early as ages 3 to 5, but the teen years are critical. By age 14, you can start “real-world” training with money. Take the amount that you would normally spend on them for entertainment, clothing, and other needs and put that into their checking account each month and let them manage it.

If they spend it all on a pair of designer sneakers in the first week and have no money to go to movies with friends later, they have learned the lesson that money is finite, and they need to manage it better next month. This will allow the teen to “practice” with money and experience firsthand the trade-offs and discipline that comes with it.

Equipping teenagers with a solid understanding of these seven money concepts is a valuable investment in their future well-being. Youth who grow up with a good education around money will grow into adults who are less likely to get stuck in a dangerous debt cycle, are better prepared for emergencies, and have the surplus to give to charity and support their communities.

Jamie Bosse, CFP, RFC, is a CERTIFIED FINANCIAL PLANNER and member of the Financial Planning Association of Greater Kansas City. She is a financial planner at Aspyre Wealth Partners in Overland Park, and is the author of the “Milton the Money Savvy Pup” series and “Money Boss Mom, Helping Young Parents Be The ‘Boss’ of Their Financial Future.”