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Money Matters
Allison Bloom, 04.08.05
"I've learned that you should never spend more than you make." |
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Thinking about dropping a wad of cash on a souped-up stereo or really hot pair of boots? Think again. Whether you've got a few extra 20s in your pocket, or you're anxiously awaiting that next paycheck, many teens find that managing their money isn't a natural talent. And even the most financially savvy teens need a few pointers on how to stretch and save those crisp green dollar bills.
Money Talks
"My parents have talked to me about being financially responsible, and it's really helped," says Chris, 18. "I've learned that you should never spend more than you make."
Whether it's saving up for fun things like concerts and clothes, or for more practical concerns like college tuition, buying a car, or helping your family make ends meet, knowing how to manage your money can help you avoid dangerous pitfalls.
In order to save up for what you want or need and avoid falling into debt, Dr. Robert Manning, a professor at Rochester Institute of Technology and author of the book Credit Card Nation, suggests setting up a budget.
Make a list that includes your income — any money you receive as an allowance or paycheck from a job — and your expenses — things you spend money on, like food, transportation, and clothes. Any remaining income that's left after expenses is savings. The key is to understand how much money, or savings, you have left to spend. If you use "borrowed money" from a credit card, remember that it has to be paid back each month — otherwise, you'll be charged interest.
"The bottom line is that teens don't tend to become interested in managing their money until they have a problem," Manning says. "The tip is to avoid the problem before it happens."
Credit Card Nation
Some teens have after-school or weekend jobs to help them pay for the things they need or want, and others get an allowance from their parents. Either way, it's important to think about how you want to spend your money.
Managing a small savings or checking account is a great way to learn how to save and spend sensibly. Savings accounts can even earn you money, by paying you a small amount interest on the money you deposit.
And then there are credit cards. Although credit cards can be useful when you don't have cash on hand, credit card companies count on people spending more money than they can pay back, eventually charging them hefty fees.
According to Nelliemae.org, an organization that helps students borrow money for college, 83 percent of undergraduate college students have at least one credit card. By graduation, students have an average debt of $20,402 in education loans and credit card balances. And credit card use among high school students has more than tripled.
"Not everyone is ready at the same time for this type of responsibility," says Manning. "Teens need to have a more practical understanding of their financial responsibilities before taking on a credit card."
You're in the Money
Managing your money takes some work. Here's the rundown on four important steps to get you started:
- Practice makes perfect. Rome wasn't built in a day, and neither was your budget. Set up a weeklong budget and give it a test run. Write down what you think you need to spend, and then what you actually do spend. If your estimates are off, make adjustments and keep trying until you get it right. The key is to have more money coming in than going out.
- Ask for advice. Many high schools now offer after-school programs on money management that parents and teens can attend together. Talking to parents, teachers, and older siblings about their successes and failures can help guide you in the right direction.
- Go online. Manning's creditcardnation.com and Young Money Magazine's youngmoney.com provide helpful tips for balancing a budget.
- Save, save, save. This is the bottom line. It can be tempting to go on a shopping spree when you have extra cash, but living paycheck to paycheck can get you into trouble. The less you spend, the more money you'll have left for the things you actually need — and for unexpected expenses that pop up sometimes.
Becoming a money-smart teen isn't always easy, but with a little research, thought, and practice, you'll be on your way toward a smoother financial future. Take it from David, 14, who recently saved enough money to buy a new computer: "Some teens get money and spend it in a couple of days," he says. "Others put it away and save. If you spend your money too quickly, it might take you a while to realize how valuable money is. It shouldn't be taken for granted." |
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