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8 Money lessons teens won’t learn in school

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By Andrew Housser

While most everyone could use a refresher on money skills from time to time, financial education is especially important for young people who are just learning to manage money. Financial Literacy Month is a prime time to focus on this issue. Unfortunately, schools do not always teach basic personal finance skills, and parents might be worried that they do not have enough information or might set a bad example. Whether you are a teen, or a parent looking to help your teenage child, these eight lessons can help create good financial habits.

Make your money hard to reach. Most young people use cash for purchases, but having cash in your pocket makes it that much easier to spend it. After a day at school, if you stop by the convenience store with friends, and then run an errand at the mall, you might come home with no money – and little to show for it. Stash your cash in a safe place at home instead of carrying it with you all the time.

Plan your spending ahead of time. You probably have heard that you should have a budget, or that you will need a budget in your adult life. Another name for a budget is a spending plan. Before you go somewhere, think through what you might need to spend. Need to buy lunch? Would you rather save your money and bring a lunch from home? When you go out, take only enough cash to cover the purchases you have planned to make. You will wind up with money to spare – and a few steps ahead of many adults.

Open a savings account. Add funds every week or month, and watch them accumulate. A good goal is to save at least 20 percent of everything you earn. Those “earnings” may be from a part-time job, birthday gifts or an allowance from your parents. By saving regularly, in a few years you will have enough money to make a big difference – whether you are saving for a car of your own, a trip or sports gear. Plus, even if you receive substantial financial aid to attend college, be aware that your school likely will require you to contribute part of your savings to your education.

Build an emergency fund. Once you have started saving, build up a balance dedicated to paying for unexpected expenses. It is one thing to save up for a guitar or car. But what happens when your purchase needs a repair? Get in the habit of allocating 10 percent of your earnings for a rainy day. If you are saving 20 percent of what you take in, that means reserving half for your emergency fund. Your future self will thank you.

Flash your student ID. Many businesses offer student discounts, from movie theaters and retailers to museums. Always ask if business offers a student discount. Then put the money you saved in your savings account, instead of spending it on something else.

Think about retirement. It might sound odd to start planning for retirement while you are still in school. But the fact that retirement is so far away is the very reason to start saving for it now. The younger you are, the more years you have for your money to grow. For instance, if you save $1,000 in a Roth IRA at age 17, that money can grow for 50 years. In an account earning 5 percent interest, you will have nearly $11,500 in 50 years. If you add another $1,000 each year, you’ll have more than $231,000.

Understand the difference between debit and credit. You no doubt have noticed that adults often pay for purchases with plastic. That plastic might be a debit card or a credit card. A debit card withdraws money from the user’s bank account right away. A credit card purchase is a loan from a bank or other financial institution. Loans come with interest charges, or a fee to borrow the money. If users pay back the credit card loan within 30 days, in most cases, they will not pay interest. If they pay it off over a longer time, interest fees add up, and the debt becomes a burden. Think of splurging today on a $150 pair of shoes, charged to a credit card with a 15 percent annual interest rate. If you were to pay only a minimum payment of $10 a month, it would take 17 months to pay off the debt, and you would give the bank an extra $20 in interest.

Start with a debit card. Several major banks and credit unions offer accounts specifically designed for teenagers. Other banks let teens open a joint checking or savings account with a parent or guardian. These accounts often come with the option for the teen to obtain a debit card. It also is possible to find teen-specific prepaid debit cards that are not part of bank accounts. Unlike cash – which you can pull out of your wallet and count – you have to keep track of money in your bank account. You might use your bank’s app on your smartphone, or write yourself a note and work with your account on the bank’s website. However you do it, using a debit card will assure that you cannot spend more than you have. If a debit purchase would be more than you have in your account, the purchase will be declined. For most people, it is best not to use credit until acquiring more expertise in managing money.

Teens who follow these guidelines as they begin managing money will soon be better off than many adults. It takes discipline and planning to live within your means, but the reward is peace of mind and, ideally, financial freedom and prosperity.

Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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