Everybody wants to be a billionaire. Wouldn’t it be nice to win the lottery and be set up for life? But for the fourteen million people who don’t hit the jackpot each week, smart saving and financial planning can ensure a comfortable life through retirement. And, although senior citizenship feels fourteen million years away to most teenagers, the earlier we start saving, the happier we’ll be on our sixty-seventh birthdays.
Teenagers and young adults today have many financial concerns: how she’ll pay for college; if he can afford a car; will Dad pay for the concert tickets? Whether a person has had a savings account since elementary school, or has never held a job in his life, it’s important to gain an understanding of how to budget and save. Saving is the most important habit teenagers can develop to ensure financial security sixty years down the line, and is most simply done through a savings account. For the purpose of illustration, let’s look at the financial habits of Rory, a seventeen-year-old student. Starting as small as setting aside a couple dollars of weekly allowance, Rory can gradually increase his savings as he receives interest on the money in the account, begins working part-time, or receives other forms of income. It’s also useful to create a budget, to keep oneself accountable for purchases. You can’t be a smart saver unless you’re a smart spender first! Budgets allot a certain amount of one’s income or revenue for different purchases; for Rory, this might mean that 20% of his $80 weekly paycheck goes into his bank account, 30% into cool socks, pizza, and music downloads, and the remaining 50% pays for gas and insurance for his car. Budgeting reminds us to balance our spending between “needs” and “wants” and account for “needs” first.
Though it may seem many years away, teenagers should also start considering the financial responsibilities of adulthood. Most big-ticket purchases, like a car or a house, require a down payment and then a mortgage or loan to pay off the remainder of the cost. Rory, being a savvy planner, expects to be married in ten years with 2.5 kids and a golden retriever, and thinks that he’ll ready to buy his first house. But before the realtor hands him the paperwork and lays out the welcome mat, Rory will have to prove that he is a responsible man who can be trusted to pay off the large mortgage he’ll owe on the house. How will the bank know he’s good for his word? His credit score. From the first purchase one makes on a credit card, the banks and credit compan ies track one’s spending habits, and whether monthly payments are made on time. For teenagers, especially, it is tempting to overspend using a credit card, because it doesn’t feel like you’re actually using money. To become better savers, teens can start holding themselves accountable for paying off their bill each month, and work to avoid making unnecessary purchases (as great as that art-deco floor lamp might look in your future dorm room). This behavior ingrains good habits that will result in long-term benefits.
Additionally, teens can make great progress towards securing their futures by learning how to invest and take advantage of retirement plans and other perks of employment. Now, Rory works at a local ice-cream parlor, and isn’t offered a dental plan or the chance to put a percentage of his income into a 401K. In fact, like most teenagers, Rory doesn’t really understand what a 401K is.But in considering adult life and full-time jobs and financial responsibilities, it’s really useful to educate oneself on the terms and techniques of financial planning as early as possible. Teens should learn the difference between stocks, bonds, and mutual funds and how compound interest can be a man’s best friend, to best prepare for future investing, and may want to start paying attention to current affairs to gain an understanding of how things affect the economy. Interest rates, inflation, and global trade all determine how an investment portfolio will grow. It’s empowering for teenagers to recognize what is happing to their money, and why, and what they can do to increase their savings.
There are many aspects to smart saving and long-term financial planning. It’s been proven that starting saving for retirement at age eighteen will require a smaller percentage of Rory’s income each month than if he started at age thirty-five, and will have a greater overall yield. It’s never too early to start developing the habits and knowledge of smart savers-attending workshops, researching online, and visiting a local bank are all great places to begin-and the earlier teenagers take responsibility for their personal finances, the better off they’ll be.
I encourage you, any teenagers who happen to stumble across this, to take the initiative to open a savings account and start thinking about creating a budget (that you’ll actually stick to!) I’ll be spending some time over the next few months learning how to invest my savings from my own part-time job at an ice-cream parlor and designing a budget for my fast-approaching college days. The next five years have the potential to shape our happy retirements if we play our cards right, and becoming more educated and responsible spenders will enable us to make the best choices to ensure comfortable retirements and adequate savings over the course of our entire lives.