There are things that teens should know about money before they graduate from high school. I really think that personal finance should be a required course in order to graduate. It’s probably the most useful thing before you embark on your own!

Oh the things I wish I knew about money as a teenager.

Ah money. It’s one of those things that we can’t escape dealing with. We need to know about money. I believe that it’s essential for teens to know about money management so that you can make good choices in the future. In this post, I’m sharing the 6 things I wish I knew about money as a teenager. If I’m being honest, if I could go back and do these things back then, I totally would.

I remember when I was in high school and I wanted to get a summer job. Something easy like retail to spend the long summer days, earning money rather than just sitting around, and one place I always wanted to work was the bookstore like Barnes & Noble or Borders (RIP Borders). Unfortunately, I was never able to snag a retail job in high school. Probably because I didn’t offer enough hours. Oh well. I later learned that I never wanted to work in retail anyway.

I was lucky enough to get a job one summer working for my aunt at her office. I did simple clerical work like filing, organizing spreadsheets, and making copies. To me, this was the ultimate kind of summer job. I got a cool key card to buzz into the building, I was getting paid $8/hour (big money when minimum wage was like $6.25), and I felt grown up. I could imagine my future adult life in this kind of setting. It was really cool when I got my very first paycheck and I got to deposit it into my bank account. I actually had money coming in that wasn’t a birthday check or allowance from my parents. I earned money to do with what I wanted.

Looking back now, there are definitely some things that I wish I knew about money as a teenager that would have set me up even better for my life now.

6 things teens should know about money

1. What Teens Should Know About Money: Taxes Stink

Yep. I remember when I received my first paycheck and saw the gross amount. And then I saw the net amount. I thought, “What the heck! Where did my money go?” That’s called withholding. And it comes with most paychecks you receive, especially if you’re working for a larger company, such as any of the retail stores, fast food joints, or in an office setting. The government takes their share. It’s kind of one of those things that you just have to get used to. You’ll never be able to escape them…unless you don’t ever work…but that’s a different story. And when you work for yourself, you get to save your own taxes (not fun either!).

2. Create a budget no matter the size of your income

This is definitely something I wish I knew about in high school. While I didn’t have a regular part time job while in high school, I think the knowledge about budgeting would have made a world of difference once I got to college. Even if you’re not making an income from a job, you might have money coming in from allowance from your parents, inheritance from a grandparent or relative (in the form of college tuition + expenses), or a student loan disbursement. If you’re receiving money of any kind, you should have a plan for what to do with it. That’s what a budget is, plain and simple: a plan for your money. Check out Mint.com – it’s an awesome FREE app and online software for budgeting. You can connect your bank account, set up a budget, and create a savings plan. You can easily see where your money is going and how much you have left. As Dave Ramsey says, “Give each dollar a job.”

3. Live by the 50/20/30 Rule

What is the 50/20/30 Rule? It’s simple. If you’re making an income or have money coming in, create a budget based on splitting your money 50% / 20% / 30%. 50% is to be allocated to your set living expenses – this is your rent/mortgage, utilities, transportation, and groceries (not eating out) – these are your ESSENTIAL “need to live” expenses. Next, 20% goes towards savings and debt (hopefully you won’t have any for a while!). Finally, 30% goes towards lifestyle – this is your budget for restaurants, entertainment, shopping, and personal care. Now, it might be difficult to think of living off 80% while you’re in high school and still living with your family. But it will definitely come in handy once you start paying for yourself. Trust me. It’s good to have savings. For a rainy day. For a flat tire. For a vacation. Basically, bottom line is, don’t live on 100% of your budget…savings is important and often overlooked by young people. Two great resources are Learnvest (which is where this 50/20/30 Rule comes from) and the popular finance expert, Dave Ramsey.

4. What Teens Should Know About Money: Automate your savings

Make savings easy on yourself and make it automatic. That was the best piece of advice I ever received about saving money. I remember when I was saving money for our wedding and I wasn’t sure how I was going to ever get to what the “National Average Wedding Cost” was. However, I took the automation advice seriously and saved the same amount per paycheck. I opened an online savings account (which at the time had a 5% interest rate!!) and set up an automatic withdrawal from my main bank account after every payday. Quickly and without thinking about it very much, my savings grew and grew. It grew into the largest nest egg I had ever seen. The best part was that it was automatic and I didn’t have to do anything with it once it was set up. I highly recommend setting up an online savings account (such as Ally or Discover Bank – there are lots!) and setting up automatic savings. It doesn’t have to be a huge amount. It can be that 10% from above. It can be $25, $50, or $100. You can choose the frequency. Now you can stand back and watch your savings grow.

5. Open a Roth IRA account sooner rather than later 

I once heard that if you started saving at 18 years old, you could be a millionaire by the time you’re ready to retire at 65 or so. I was intrigued and wanted to know how to make this happen. I learned that even just a few years of when you start can make a huge difference – starting at 18 vs. starting at 25 – because time is on your side and so is compound interest. Okay, the long and short of it is opening a Roth IRA account through a company such as Fidelity Investments or Charles Schwab. Make regular contributions and select a Target Investment account (I believe this is easiest if you’re not interested in learning the ins and outs of investments, but want something set up) and again, watch the magic of compound interest do it’s thing. Why start now? Because even if you’re just contributing a little bit of money throughout the year, you’ll still have a healthy headstart and time for your nest egg to grow.

6. What Teens Should Know About Money: Use Credit Cards Wisely

Contrary to what you may have heard, credit cards are not the worst thing ever. They can become the worst thing ever if you use them foolishly. I think this happens to many young people once they get to college. I’m pretty sure that credit card companies prey on young college students who don’t know anything about credit cards. It seems and can feel like “free money.” But listen, if there’s anything that I can tell you through this entire post, it’s that credit cards are NOT FREE MONEY.

Credit cards are basically loans from the credit card company, and unless you pay your credit card bill off every month, you’ll be paying a whole lot more than you spent. Now life has pretty much made having a credit history a necessary evil if you have any ambitions of purchasing your own car or one day buying a house. The key to using credit cards wisely is to use them ONLY if you can pay off your bill. It’s carrying a balance that can get you into trouble.

Of course, talk to your parents first before acting on any of this advice, but once you’re ready, I’d recommend applying for a credit card. Use it sparingly and only if you can pay for what you’re purchasing. Now why would you use a credit card if you have the money in cash or in the bank? For credit history building purposes – for one day financing a car or getting approved for a mortgage. You can easily get in over your head if you are not smart when using a credit card. That’s why I say proceed with caution and use it wisely. Don’t use a credit card on something you can’t afford to pay for in cash. Credit cards should be used with strategy rather than a crutch for when you don’t have the cash.

*Note: I am not a financial advisor or money expert. This is meant to be practical advice, but please consult with your parents, a financial advisor or professional before taking action on any of these things.

Money Books to Check Out

If you have an interest in learning more about money and personal finance, I suggest checking out these books – see if you can find them at your local library, or click the link to read up about them on Amazon.

Smart Money Smart Kids, Dave Ramsey

Total Money Makeover, Dave Ramsey

Financially Fearless, Alexandra Toben of LearnVest

I Will Teach You to Be Rich, Ramit Sethi

The Money Book for the Young, Fabulous, and Broke, Suze Orman

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