According to the State of Indiana Department of Financial Institutions, American teens spend over 84 billion dollars a year on goods and services. While this money comes largely from parents in affluent families, teens must still learn the basics of money management in order to discover how to handle the money wisely and avoid problems in the future. Learning to manage money wisely can teach a teen how to:
- Make responsible purchasing decisions
- Understand the value of money
- Understand the benefits of savings
- Understand the consequences of their choices
Many teens decide to get a job as they near the middle or end of their high school education. Teens who have a part-time job have more disposable income to purchase the things they desire. Teens typically earn money through these jobs, which are often in the realm of unskilled labor or entry-level sales, and begin to appreciate the value of the work they must endure for the reward they have earned.
Teens who begin to earn money often start saving either for a specific goal or for long-term needs. Many savings programs for teens are available from banks and other financial institutions that teach you how to save while still having a fair bit of disposable income. The Federal Deposit Insurance Corporation advises placing at least 10 percent of your income automatically into a savings account for future use or investment. This helps to ensure that you have funds when you need them, and larger savings amounts can help ease the costs of college, a new car or other needs that may arise in the future.
Understanding the Value of Money
Those who work for their money, as opposed to engaging in criminal acts or borrowing from friends and family members, are likely to quickly learn good money habits. Many teens rely on gifts from family members and may never truly understand the value of their income. A lack of understanding leads to mismanagement of funds as teens do not understand the work that goes into earning that money. This can lead directly to overspending and a lack of savings. Gifts should rarely be given without conditions or expectation of repayment, and many families work out allowance programs to pay teens for work done around the house or for a family business.
Additional Considerations for Older Teens
Older teens have even more options for earning and using money. Many credit card companies allow students aged 13 or older to obtain debit or credit cards for easy spending. These cards require a parent as a guarantor or a specific amount of prepaid funds prior to issue. Banks may offer financial instruments, such as certificates of deposit or savings bonds, to teens. Understanding the costs, including interest gained or lost, of each different investment type can help a teen learn the advanced money management techniques employed by adults in modern society. Teens should always keep in mind the costs of college and the expense of interest on student loans and similar considerations.