Sabrina is a 17-year-old senior from Bellevue, WA. She loves to figure skate, eat vast quantities of frozen yogurt, and jump in lakes in the middle of the night! Her favorite subject is English, because she loves to write and read anything she can get her hands on.
It seems almost magical to most teens. One day, you’ll be walking around the mall with your friends and a wallet full of crisp, green bills—and the next, you’re moping around at home, so flat broke you can’t even afford to go out for lunch with your friends. Where did all the money go? It’s a common enough problem, because teens spend money impulsively when they get it, and don’t often think about how saving just a small portion of it can be immensely helpful in the future. When is the last time you had to forgo a concert with friends or put the cutest dress back on the rack, because you simply didn’t have the dough? If you’re anything like me, this happens pretty frequently, and when it does, you curse yourself for wasting your money on extraneous food and knickknacks that you don’t even like that much. But don’t give up hope yet! There are several ways to save money for the future, whether your goal is saving up for college tuition, a car, or a concert ticket.
First, open a bank account. Seriously. Parents, you can help your teen accomplish this first and easiest step by accompanying him or her to the bank and opening a joint account under both your names. While teens might want to open their own account completely independently of their parents, it’s often better to open one with a parent. For one, this makes it much easier for the parent to transfer allowance or gas money to the teens account: instead of always having to withdraw cash, the parent can simply transfer money directly to the account. For another, many banks offer rewards to high school students who open their first bank account, but a parent needs to be present to approve the creation of the account. Some banks even offer bonuses for teens with high GPAs opening an account with them!
Once a bank account has been opened, it’s much easier for teens to save money, because they have a safe place to put their money and a greater incentive to leave it there: bank accounts acquire interest, and more money in the account= more interest incurred.
Second, acquire a debit card to go with the new account; this makes it exponentially easier for teens to make transactions without worrying about loose change or losing their wallet; it’s easy to cancel a debit card if it’s stolen, whereas if a wallet full of cash is lost, there is no way to get back the missing money. Having a debit card also helps teens acquire a sense of financial independence and responsibility, because the simple act of using a card instead of cash to buy things makes teens feel more mature. With this maturity comes a tendency to be more financially responsible, and not to spend money so freely.
By acquiring a bank account and a debit card, you’re well on your way to start saving money, but there is one more step you can take that will help even more, especially if you’re a natural spendthrift. There is no use opening a bank account if you immediately spend everything in it, and to that end, I recommend opening two accounts under the same name: one checking and one saving. The savings account will be used for long-term saving/big purchases, and the checking account for essential purchases like gas, lunch money, stuff for school, etc. In this way, teens can make progress towards acquiring enough money to make a significant purchase, while still having enough money to buy what they need to buy, and some left over to buy fun things! Barring extenuating circumstances, the best way to allocate your money under this system is to split it into 3 parts; 1/3 cash, 1/3 checking, and 1/3 saving.
As an example, consider the following scenario. Say you score a babysitting gig and get paid $75 for it. If you didn’t have a bank account, what would you do with the money? You might think to reward yourself for all your hard work by going out to the mall and movies with a friend. A few short hours later, you’ve spent $10 seeing the latest overblown chick flick, $15 on overpriced movie snacks, and $50 on a few t-shirts and accessories that are cute, but nothing special. And just like that, your hard-earned $75 went down the drain!
When you use the two-account strategy, however, the scenario plays out quite differently. You’re paid $75, and you immediately put $25 in each of your accounts (checking and saving) and keep $25 in cash. The 1/3 of the money in your saving account is for long-term purchases and the 1/3 in your checking is for food and/or gas—aka, essential purchases. So if you still go to the mall with your friend, the maximum you can spend is $25, because the rest of the money is in the bank! This way, you ensure that you save up enough money to buy the latest iPod or Smartphone that you’ve been coveting, and you still have money for the things you need and for (at least some!) of the things you want. It’s a much better system than simply carrying around cash, and will help you develop the financial responsibility and bank familiarity that you’ll eventually need as an adult.
So if you’re a parent reading this article, share it with you teen; chances are, they’ll jump at the opportunity to be able to pay with plastic. And if you’re a teen, well, what are you waiting for? Grab a parent and head out to the local bank today to get a head start at becoming financially responsible, independent, and rich!
Photo: Images_of_Money from Flickr