Teens & Their Finances
That's one caption I never thought I'd be posting on my blog!
Over the past year, I've become very interested in money. As an entrepreanur, it's up to me, all of the time, to make my own money. There's a positive side and negative side to that story (way more work, better rewards) and as I speak with more parents, I realize that most young adults have totally no idea what to do about money.
Most of you are reading my blog are probably teens/kids, and haven't thought about anything besides passing your school classes since you can remember. That's how I was, until my blog went full-time, and I realized that money is quite important. On Saturday, I went to the Lady Project Summit in Providence, and listened to a financial team talk about handling finances. Of course, I was the youngest person in the room, but that didn't stop me from being curious and asking questions.
If you work a regular job right now to put yourself through school, or high school, and don't have any "side" money or a rainy day fund (put $1 in a jar x week, it adds up) this article may not be of interest to you. I still suggest reading through because soon enough, you'll be making money and have no clue what to do with it.
For those of you that aren't making tons of dough, but feel like you should be doing something more than spending money on food with what you have, here are some simple options.
an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.
What the heck does that mean? Well, a financial advisor or one of your parents will be the best person to discuss setting this fund up with, but basically, it's a savings account that you can't touch. I have my dad handle my IRA because I don't handle financial stuff well (I always need another pair of shoes....) and I put in as much as I financially can. You are penalized for touching this account, which is fantastic because unless you truly need the money, you won't feel tempted to touch it. You can put in a max of $5,500 x year.
I just downloaded the app, Acorns, on Monday of this week. I came across it after someone brought it up at the seminar, and I was thrilled to see something like this. Acorns rewards you for spending money in certain places (if you use HotelTonight, you get $10 for every booking, $30 for signing up for Blue Apron) but more importantly, rounds up all of your purchases to go into a separate savings account. Say you spend $2.50 on a coffee- they will put $1.00 into a savings account for you. Refer your friends and whoever signs up gets you $5 into your account, too!
This one is a toughie. I didn't get my first credit card until last year, which was actually later than most teens get one. I've always been hesitant to advise teens to get credit cards because most teens don't have any relationship with money at all, and won't know how to handle unlimited funds. On the other hand, one day you'll probably want to buy a car or a house, and you'll need evidence of good credit to back you up.
Therefore, I suggest starting with a $300-500 limit on a credit card, approved through your bank. You can always up the limit. Pay off the money in a timely manner each month, and don't forget that credits cards take interest. Upon deciding which card to choose, talk with your bank and figure out the interest rate first. From there, pick the card suited to your needs and your financial position.
Know Your Expenses
You probably won't have to worry much about your expenses until you're out of school, but knowing your income and expenses is really beneficial for arranging a good balance. For me, I always keep money in my IRA, my savings account, and my checking account, just in case. I also know I have to make X money per month to pay for my expenses (rent, assistant, food...) and if I don't bring in any income for one month, I know what I have to cut back on spending wise.
Talk To Your Parents
They have experience, and can likely guide you through key steps to handling your finances. I suggest every teen get a job as early as they can, and get a savings account as early as possible. There's nothing worse than not knowing how to handle money once you're out of college, right?
Here's the one concern teens consistently come to me with- how to get out of debt. I didn't go to college, so I can't necessarily advise you properly on this topic. But Dummies for Investing, this article, and this one, may help. You know getting out of debt doesn't happen overnight- but how do you get out of it without working 7 jobs? Start putting $5-10 x week the minute you finish high school (or maybe earlier) into a separate savings account, and start small. Everything adds up.