The teenage years are the ideal time to learn money tips, such as the different types of savings accounts! Here, Jill Russo Foster describes emergency funds, compound interest, and the importance of paying yourself first.
Before her tips, a quip:
“If you want to recapture your youth, just cut off his allowance.” ~ Al Bernstein
If you have a job, my teenage friends, you won’t have to worry about your allowance! For info about finances, click on The Teen’s Girl’s Gotta-Have-It Guide to Money: Getting Smart About Making It, Saving It, and Spending It! by Jessica Blatt et al. And, read on for Foster’s money tips and types of savings accounts for teenagers…
It’s never too early for to start investing! Teens should start to invest as early as they get their first real paying job. The power of time is on their side, so investing small amounts for long periods of time will mean that you investment will grow over many years.
2 Different Types of Savings or Investment Accounts
Foster recommends starting two different types of investment accounts:
Long Term Savings – there are two types of long term savings. The first is for college tuition and expenses; you should be investing in a 529 plan from the time you are born. If a family member didn’t do this for you, then start as soon as possible. The second type of long term savings is for what you want in life (ie. new car, your first apartment etc).
Short Term Savings – or an emergency savings fund, so that whenever happens in life you’ll be prepared with cash in the bank! This emergency money will be available when you need it (eg, a security deposit for you first apartment, unexpected car repairs etc). Emergency funds are kept in a bank account that has no penalties to withdraw the funds when needed. As you get older, you should build this account to have a minimum of one year of your income. This will give you the security if you lose a job and can’t find another one quickly.
If you’re worried about handling your money, read 4 Tips for Facing Financial Fears.
Learn about compound interest. If you were to invest $300 per year ($25 per month each and every month), at a 5% interest rate, you will have earned $3,923.23 at ten years and $10.343.66 at twenty years. If you can invest more, that would be great. Read
Pay yourself first! Make a habit of paying yourself into your savings account first. So whenever you get money or a paycheck, deduct a certain amount and deposit it to your account. Ask the company that you work for to automatically withdrawn the amount for your savings before you get your paycheck.
To learn about investing in mutual funds or the stock market, read Best Strategies for Investing Money for Long-Term Growth.
Jill Russo Foster is the author of Cash, Credit and Your Finances: The Teen Years. She educates teens to the importance of money and credit so that they won’t make the mistakes that she did!