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Finances for Teens

The days of the piggy bank and the dollar-a-week allowance are past.

  • Timothy D. Terrell,
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The days of the piggy bank and the dollar-a-week allowance are past. You've got a job, and you're making several thousand dollars a year, boosted by those Christmas gifts from your family. Maybe your first tax return is due this April 15. The financial side of your life is definitely different from what it was two or three years ago.

So the question is, what do you do with all that newfound wealth? Certainly your local shopping mall has lots of ideas for you. Or maybe you have your eye on a big purchase, like a car. If you're like most of us, whatever is on your wish list, it's a sure thing your money will run out before your wish list does.

There's nothing necessarily wrong with spending money. Ecclesiastes 2:24 tells us that. Having a realistic idea of what is ahead in life, however, should produce a change in our spending habits today.

Thinking about Your Financial Future

The maturing process from ages 15-25 involves dramatic change. You will graduate from high school and perhaps college, very possibly marry and even have children before your 25th birthday. You may start a salaried job and purchase a house. You may go through two or three cars during that time, and start building up a collection of necessary household goods like furniture. You may begin investing in a retirement plan. In short, there are significant financial obligations just around the corner.

Sticking your head in the sand and hoping "something will come up" to pay for the necessities of adulthood is, well, naïve. Working and exercising good stewardship over the resources God gives us is part of our responsibility as Christians. Proverbs 6:6-11 advises the lazy to provide for the future now, while provisions are easy to find. The ant "provides her supplies in the summer, and gathers her food in the harvest." While you are still under your parents' roof, you have a wonderful opportunity to get off to a good start financially. Most, if not all, of your necessary expenses are covered by your parents, leaving you with financial opportunities you may not have even after you graduate from college and start a salaried job. Working 40 hours a week at only $6 an hour for the summers before your sophomore, junior, and senior years of high school could put nearly $9,000 in your pocket before you leave for college. A higher-paying job, overtime, or part-time work during the school year (if your grades permit) could boost that sum considerably. What you do now with those earnings from work, plus monetary gifts, can make a big difference as you establish your own household just a few years from now.

Pre-College Financial Tactics

As you build your money management skills, think about making these tactics part of your overall financial strategy:

1. Start a savings account. You may have one already that your parents started for you. If that one has been set aside for college funds, then start another general-purpose account. As soon as you meet the minimum deposit requirements, change the account to a money market account. These earn a higher interest rate than a statement savings account. There may be limits on withdrawals from your account, so when you deposit money, you will want to keep some in cash and use cash for most of your transactions.

2. Limit your spending to a certain fraction of your income. Everyone's situation is different, but it wouldn't be unreasonable in most cases for a teenager living with parents to tithe 10%, spend 40%, and save 50%.

3. Start an "envelope system" to practice budgeting. Since your income is likely to vary, good budgeting is even more important. Right before starting your job for the summer, estimate what your income is likely to be the following year, including your regular allowance, and then think about what you like to spend money on. Consult your parents for help. Remember to tithe 10 percent, and try to leave a large fraction unspent—maybe half. Divide your projected income up among all the categories. Get an envelope for each category, and write on each one what dollar amount per month you plan to be spent in that category. Clothes might be $50, eating out $30, music CD's $10, and entertainment $15. Every time you deposit income in your savings account, take out 10% in cash for tithing. At the beginning of the month, withdraw enough cash to fill all the envelopes (making sure, of course, that you have the money in the account to begin with). Some months you'll have some left over in the envelopes at the end of the month—this is great because you can spend it the next month. During the summers (when you are working) you might be adding a lot to your savings account, and during other months you might be taking more out than you put in. But, if you have budgeted a large fraction for savings, you should end up with an account that grows in the long run.

You can consider scrapping the envelopes and using a checkbook, but it is easy to get into trouble with a checkbook. You might want to build up a habit of sticking with a budget before introducing the temptations and record-keeping problems of a checkbook.

4. If your savings really grow, start investing. Investing has to be carefully considered and you will want to seek lots of advice on this. You may want to stay conservative and allow the savings to continue to accumulate in a low-risk money market account. This is because there are a lot of big financial events coming up for you in the next five years or so that your income may not cover. You may find it necessary to buy a car, pay some college tuition, or buy an engagement ring. But, if your money market fund starts to bulge, consider opening a mutual fund. You can do this through a bank, or pick up a financial magazine for the names of some investment companies. Many funds have minimum opening balances of $1000. Make sure you pick a conservative fund to start with, and evaluate whether you can live without the money for at least five years. This fund could even become your "nest egg" for post-college life.

5. If you buy a car, go for inexpensive and reliable rather than sporty. A car may be the single largest expense for someone your age. Resist the urge to blow your savings on the car your emotions want, and remember that you are making it easier to buy an even nicer car in the future, when the one you want now is in the junkyard. Young men can cut cost by sacrificing some reliability—if you break down on the side of the road the danger is not as great as it is for young women. Don't buy a rusted-out junker, though, or just keeping the car running can turn out to be more expensive than buying a reliable car to start with. A small pickup truck is practical for many high-schoolers—the insurance payments aren't high and the cargo capacity is priceless when you move to college.

You'll Be Glad You Did. Really.

Sure, it's hard to think seriously now about what your needs will be in five to ten years. But building good financial habits now will help you immeasurably in the future. When you're able to put a large down payment on a house, support your family during a period of unemployment, pay cash for a car instead of borrowing, or lend aid to someone in financial distress, you'll be glad you made wise decisions while still in high school.

In thinking about these things, of course, we should remember that riches do present a temptation to divert our trust from God. "He who trusts in his riches will fall," says Proverbs 11:28, "but the righteous will flourish like foliage." Wealth is a blessing, but it is only beneficial as long as we are using it in a godly way, and not relying upon it for our contentment.

  • Timothy D. Terrell

Timothy Terrell is associate professor of economics at Wofford College in Spartanburg, South Carolina. He is assistant editor of the Quarterly Journal of Austrian Economics and is an Associated Scholar with the Mises Institute.

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