Financial Advice for Teens
4 min. read
By: FCU Team
When it comes to money, there are some things they don’t teach you in school but you need to know as an adult. Before they head off to college or start a career post-high school, you’ll need to make sure your kids know about how money works in the real world.
Have Your Own Bank Account
Part of growing up is learning to take responsibility for yourself. This, of course, includes money, so before heading off to college or work, your kids should be in charge of their own bank account, including having their own debit card.
This doesn’t necessarily mean they need to have all their money in their own name without any supervision. Keeping savings accounts and bonds under the careful watch of your own eyes until they are old enough to be trusted to use them responsibly is recommended. By the time they're in high school, perhaps with a job and paycheck of their own, it’s a good time for them to start to look into getting a checking account and all the benefits they bring.
Having A Secure Credit Card
A secured credit card is different from traditional credit cards. In this case, the credit limit is backed by a deposit from the user. This means a card with a $500 limit is backed, or “secured”, by a $500 deposit on the part of the person using the card. Most credit cards are unsecured, meaning they don’t require a deposit, but secured cards are designed for people with either challenged or little to no credit history. The deposit is used as a collateral in case they don’t make their payments.
Because these cards come with collateral, interest rates are generally lower. Due to the low limits of these cards, they are ideal for high school students since it is more likely to be used for smaller priced items, and as a result, get paid off. If your kids are under the age of 18, you or another adult will need to be as a cosigner as part of the deal.
Having established credit can give you a huge advantage later in life. Your teen being able to show that they can make your payments on time will do wonders for their credit score, and will help when purchasing a car, renting an apartment, or buying a house as an adult. Upgrading to an unsecured credit card might also have a lower interest rate if the applicant has a higher credit score.
You must always remember to instill some card basics. However, if you have a credit card, it’s important to use it responsibly. Don’t buy things you cannot afford, and be sure to make payments on time and in full. For all the good you can do for yourself by using your credit card correctly, mismanaging your credit can do significant, long-term damage as well. Your payment history is reported to credit agencies, even with a secured card, so be sure to pay back your debts. When you upgrade your card, or decide to close it, you get your deposit back if you aren’t delinquent.
Make Some Investments
The teen years are a perfect time to learn and experiment with investing. Odds are you still cover most, if not all, of your teen’s expenses, meaning they should have the financial flexibility to put some of their savings towards learning the stock market through practical experience, without having to worry as much about losses.
By starting to put money away now, teens are virtually guaranteed to make money over time. For example, if your teen begins investing at 16 with $500 and adds $25 a month, earning an average annual return of 6%, their investment will grow to over $80,000 by the time they near retirement. They can calculate their expected rate of return using an Investment Returns Calculator.
Encourage them to research what type of investments they would like to make. Not all investments are created equal. Some high-profile, profitable stocks have expensive share prices, while other investments may be more risky, but have more value based on how much it will cost. Other investments, ones outside of publicly traded stocks like index funds and CDs, have less volatility, but also a lesser return-on-investment. Another option is high-yield savings accounts, which offer greater interest than most regular savings accounts while still allowing for an easy withdrawal of money.
Teens can also take advantage of micro-saving apps that are designed to take change from everyday purchases and put them towards investments. For more information on what your teen can do to invest, look at this list.
Save For College
It’s never too early to start saving for college. Putting money towards a college education is a valuable investment in your teen's future. The price tag is greater than just tuition, books, and room-and-board. Having money for everyday purchases is essential.
CDs and bonds are great ways to save money now for your child to use during their time in college. The interest rates on CDs are greater than most savings accounts because of the penalties on early withdrawals. For long-term savings, such as putting away money now for college still years down the line, these are generally a better method to get a return on your investment with less risk, and will make a great difference in the long run.
By putting a few hundred dollars away now, in a year or two, you will be able to help your college-bound teen deal with lesser, but not insignificant, expenses such as laundry and food.
Read Books on Finance
There are a number of books on money that everyone in high school should read before they graduate.
One of these books is The Complete Guide to Personal Finance: For Teenagers by Tamsen Butler. This book deals with every topic from A to Z, from business to credit and everything in between. A non-fiction read, it won the 2010 Next Generation Indie Book Award for its insightful content and ability to break down complex issues in an easy to understand manner.
Another option, by David Chilton, is titled The Wealthy Barber. Described as a “business fable”, this book incorporates elements of fiction and narrative to relay its financial lessons. The story follows three main characters, Dave, Cathy, and Roy, as they come from different backgrounds and manage their money in different ways. The barber, Roy, claims to be a “financial expert” but in reality, has become rich only by using common sense to save and invest his money.
The last book your kids should check out is called Why Didn’t They Teach Me This In School? 99 Personal Money Managements Principles To Live By, by Cary Siegal. This book breaks down concepts like compound interest, your credit score, and many other topics, explaining how they impact you in the real world. This is an ideal read for anyone interested in understanding personal finance.
FCU For You
Want to get your teen started? Consider FCU's own Youth Accounts. Our teen checking account for children aged 16 has the option for a free debit card with chip technology for maximum security, perfect for parents looking to get their teen on the right track to financial literacy.