“Financial Literacy for Teens” … maybe sounds intimidating? We get it – you have a lot going on. Classes and homework. Extracurriculars to be on time for. You don’t want to abandon your friends, but your family needs you too. You might have to fill up a car with a tank of gas, cover bus fare, have cash for a quick meal or coffee, and want something in hand for shopping or the movies. College might loom in the distance, or you may want to move out on your own when the right opportunity comes. On top of that, you have brands and influencers in your face, 24/7 pressuring you to ‘buy this’ or ‘subscribe to that.’
Everyone’s financial journey is different, but one thing is clear: managing finances in your teens is complicated. You can quickly become frustrated, confused, or hopeless with many big decisions headed your way.
Relax, take a breath, and give yourself a moment to hydrate. Are you feeling better? Ahead are tips for putting you in control of your money and on a route to future financial sustainability. Not all of these tips on financial literacy for teens will apply to you now – but take note as your circumstances may change.
USE TIME TO YOUR ADVANTAGE
This one is absolutely a hard pill to swallow: you need to be putting money into savings NOW. You may not have much to spare for savings once you get through your usual expenses. But it will be worth it. Don’t believe it? Read on…
Investments typically grow slowly, and having money in hand will seem more appealing than locking it away in a savings account. But let’s crunch the numbers on how much money you could make over a longer period.
Say you are 15 and have picked up a regular part-time job. At the end of every month, you contribute $50 to a savings account with a 4% annual compounding interest rate. If you continue to save $50 each month until age 40, you’ll have $25,422! You know what the best part of that savings number is? Of that $25,422, you will only have had to save $15,000 yourself. The other $10,442 comes from the interest you’ve earned on that savings!
What would happen if you held off on saving, though? Let’s say you wait until you feel comfortably established in your career at age 30. You have more income to invest and save with, so you put $500 into the account directly and contribute $150 every month (with the same 4% compounding interest rate). In the next 10 years, you are looking at $22,745. While that might be close to the amount of your longer investment, much more of it comes from your own contribution ($18,500), and MUCH less comes from interest earnings ($4,245).
INVEST WITH EASE
So, what about the other hurdle to investment: the amount of your dwindling time it will take? It is true that managing money in the stock market is sometimes a hands-on endeavor, requiring you to do research, take risks, and make active decisions about where your money goes. But there are other lucrative and hands-off methods of setting money aside to save while allowing it to grow.
High-yield savings accounts are a solid choice but may have some conditions that must be met. Share certificates (you might know them as certificates of deposit or CDs) allow you to put money into a savings account for a fixed amount of time at higher rates than a standard savings account (there are penalties for pulling the money early, so try to avoid that). An array of investment options are available, and with assistance from parents or another adult, managing these can be less of a burden.
SAVE ON A SCHEDULE
Getting into a habit or setting a schedule for saving will make a big difference in the long run. Doing so trains you to look at your income not as the amount that comes to you in your paycheck but as the amount left over after everything you want to put aside. You may not (yet) have regular income from a part-time or summer job, but you can make a plan to set aside an amount of money when it does come (birthday cash, for instance). It helps to decide on a set amount – say dedicating 20% to savings whenever you get money – but it might be enough to choose based on your life goals and circumstances when money comes in.
MAINTAIN A BUDGET
Ideally, your income consistently exceeds your expenses, but as we’ve discussed, you may not have consistent income, which may make saving vs. spending more difficult. This is where a budget can come in handy. Tracking your money doesn’t need to be incredibly complex. Financial apps, like FFCCU’s own mobile banking app, are a lifesaver as they keep excellent track and can often incorporate phone alerts based on the amount in your account or spending benchmarks set by you. Use the convenience of always-available technology to your advantage. When teens open a Club Ignite savings account at FFCCU, a parent or guardian has tools available to monitor that account – meaning you can have an extra set of eyes on your money to hold you to your budget.
START YOUR CREDIT HISTORY ON THE RIGHT FOOT
It’s an essential element of financial literacy, and the credit rating discussion has a lot of nuances to it and is easily a topic for another day (so stay tuned!). How do you start building credit from the ground up? What kind of debt is “good debt?” What do the number ratings mean? A sufficient credit rating will determine your ability to take out loans and credit cards and sometimes can even factor into your employment opportunities!
It sounds overwhelming, but a little planning can give you an edge in establishing good credit. A parent or guardian can add you as an authorized user on a credit card without giving you access to the actual account. This opens a credit file under your name. From there, paying bills on time and keeping a low balance on credit cards will help you slowly build your score over time. Though you’re just starting to build credit, familiarizing yourself with the details helps!
The cost of attending college is skyrocketing. While the pandemic may have stalled the rise temporarily, costs seem likely to increase. In just 40 years, average tuition prices have jumped 169%. Today, the average cost of a single year of education at a public, 4-year, in-state college hovers around $30,000, with private 4-year nonprofit schools reaching a staggering $57,000.
Those numbers are scary, and they are only going to go up. But you aren’t powerless to find options! You might cut costs by attending a community college for two years and transferring for the latter half of your undergrad. You may have the option to delay college, earning money at a job (without the burden of student loan interest rates) to put towards reducing the cost when you enroll. Other good options are trade schools, where you can pursue a range of fields with hands-on experience right in the classroom. If a 4-year school is the right choice for you, start saving ahead of time. Options like a 529 savings account are a great way to chip away at eventual tuition debt.
STUDENT ID BENEFITS
It isn’t always widely advertised, but a number of retailers you frequent offer discounts when you present a student photo ID. This includes brands that feature big-ticket items like Adobe, Levi’s, and Apple. 10% off might not be a substantial benefit when buying movie tickets, but it’s a massive saving if you invest in a brand-new computer. Do some digging and see where you can save.
SUMMER JOBS AND SIDE HUSTLE
Many of your regular responsibilities and pressures will lay off during the summer. You can use months outside the classroom to bolster your finances without sacrificing the recovery time you need. Summer jobs are a classic choice, and many employers are looking for seasonal workers. Start looking for opportunities early (at least springtime and possibly even winter!). Think beyond the typical summer jobs that will be swarmed by candidates and look at other potential employers. Are you a night owl? See if third shifts are hiring for seasonal labor, as there is less competition for night shifts.
Nowadays, making money through hobbies or apps is easier than ever. That doesn’t mean you should expect to be a multi-million-dollar viral YouTube sensation in the span of a few months, but there are easy and direct ways to earn money safely online. Shops like Etsy empower crafty folks to sell handmade products, and personal retail platforms like eBay are a place to sell good-condition items you no longer need without meeting a stranger in public. Gig work apps like Rover are another flexible source of income (though they typically require that you be 18+ to work for these services). Talk to your parent or guardian and gauge their comfort level regarding what kind of work you should pursue – both over the summertime and throughout the year.
TLDR (TOO LONG, DIDN’T READ)
Teenagers have many responsibilities, and your attention – and money – is getting pulled in many directions. Putting aside money into savings and investments now will provide substantial returns since you have a longer period to allow them to pay off. Setting schedules and monitoring your money with apps is a great way to prevent overspending. Coordinate with parents or adults you are close to – they will no doubt be willing to help you start to establish credit and make plans for further education – whether that’s saving for a 4-year college or looking at alternatives. Don’t neglect the benefits your student ID can provide and consider that while working during the school year may not be feasible, summer jobs and alternate methods of income through apps and your own creative output might be options (these sometimes require you to be 18).
It’s a lot to start thinking about, and it may feel daunting to throw the pressure to save money onto the pile. But take it one step at a time. With some planning and assistance, you can set yourself up for future success.
Let Firefighters Community Credit Union give you an advantage in growing your financial literacy! Join FFCCU and Club Ignite. We’ll help you get started, provide you with ongoing tips, get a debit card, and even get access to our scholarship program. Learn more and open an account today at ffcommunity.com.