The Complete Teenagers Guide to Personal Finance

You’re 16, a strapping young man who’ve just been promoted into the big boy’s circle of high school. You have the whole world waiting for you to conquer. Work hard and one day you can be everything you want to be – and maybe more. So you bury your head in books, you work part-time jobs and manage your dollars. You invested your earnings and from its dividends, you even started a business.

Is it possible for every young man and woman out there to behave that way? Sure. But anyone who has been a parent to a teenager would probably doubt it. Instead of studying, teenager tend to be busy “socializing”. Instead of investing, he/she tend to be looking to buy a car to buy when he/she turns 18. And instead of starting a business… well, all the money from the part-time job is being used to pay the massive phone bill.

If you’re a teenager who don’t want to declare bankruptcy at 15… then listen up. There are a number of simple, easy-to-follow financial guidelines you can follow that will not ruin your social life – yet will help you get to whatever financial goal you’re aiming for. Note that these are guidelines, not rules, because your financial situation is as unique as you are, and no set of rules will apply to everyone.

Having said that, let’s get started with the first step:

Setting Your Goals

Personal finance textbooks often forgot this part. The point of personal finance is not about hoarding cash, investing it, and hoarding more cash still so you can spend it when you turn 60. Sure, it’d be better if you leave a part of your income for retirement but that’s not what most teenagers worry about.

When you start managing your personal finance, set a goal you want. Not what your parents want, or what you teacher tell you what you should want. By achieving this goal, you’re taking matters into your hand – a skill more valuable than a stack of cash in a bank account. And when you turn 30 and you’re concerned about retirement, you’d have the skill to achieve that goal.

So the question is, what do you want? Is it a new car? Ask yourself, how would I know if I am successful? You may not realize it but you’re actually consistently achieving your goals. For example, a lot of people say “I want more money”. Getting their next pay, even if it is just $10, IS more money. If you want a car, and your parents buy you one that barely runs, that IS a car.

Instead, be very specific about what you want. What do you want to achieve? By when? How are you going to achieve it? Who do you need to talk to achieve it?

When you have the answers to these questions, ask yourself, what are you willing to do or sacrifice to achieve it? If you want to be a millionaire by 25 but you also want to “hang out” with your friends 5 hours a day, it’s unlikely those goals will work hand-in-hand.

Get A Job

If you want to achieve your financial goal faster, then get a job. And I don’t mean doing the chores at home in exchange of an allowance from your parents.

I mean go out into the real world and offer your labour in exchange for wages. There are plenty of jobs available for a teenager simply because your labour is so much cheaper compared to an adult. It’s almost guaranteed that you get hired faster than an adult would in certain positions like an attendant in Woolworth’s, a helping hand, or even a baby sitter.

If you don’t find a job you enjoy locally, find one online! If you write well, you can be a writer. There are also many busy adults who are looking for virtual assistants to help them make bookings, comparison shop, buy stuff online, etc. There are even companies looking for social media assistants. How would you like to get paid for hanging out on Facebook?

Credit Cards

Now that you’ve set your goal, you should be working hard toward it, not looking for a shortcut. Many teenagers, for example, turn to credit cards once they are eligible, hoping they would be able to buy whatever they want.

A credit card is a tool that can be used to build or destroy. It’s a tool that comes with lots of fine prints teenagers tend to ignore all together. If you’re going to use credit cards to finance part of your life, take note of these things:

1. Credit cards for students get charged more in interest than for adults. The reason is because students are high-risk borrowers. They are, generally speaking, more impulsive and they don’t have a steady income.
2. How you spend your money with a credit card will affect you the rest of your life. If you fail to repay your credit card debt, it’s going to decrease your credit rating – and therefore decrease your borrowing power. It won’t be easy for you to get a loan on more important things, like buying a home, when you get older if that happens.
3. Always repay more than the minimum that is required because you’ll end up paying for a lot more interest if you don’t – something teenagers tend to be ignorant of.
4. If you are planning to use your credit card to buy something major, like a computer for school work, look into what kind of insurance your credit card provider automatically gives you. You may not have to buy additional cover from the retailer.
5. Banks often use freebies to lure unknowing customers into borrowing. Know that these freebies are nothing compared to the interest you’ll be paying if you can’t repay your debt!
6. Be aware that the cost of credit cards extends to far more than just interest. There are annual fees, foreign exchange fees, etc – and these fees are subject to change whenever the bank see fit.

Trends and Fads

One of the best way for you to avoid debt early in life is to recognize trends and fads. Back in the 70s, there was a fad where people basically buy stones to keep as pet. Yes, you read that right: stones! It became trendy to keep stones and every kid has one.

But that fad soon faded and it was replaced with “Digimon” or “Tamagochi” in the 90s, when kids kept digital pets, often spending hours just “feeding” it and “playing” with it. Digimon soon faded and these kids grew up, only to realize they’ve wasted many a precious hour and money on a fad.

Can you recognize a fad when you see it?

Another thing fads often affect is how you dress. I’m not saying you should dress like your parents – but know that major fashion shifts occur only once every 10 years or so. That’s why people refer to fashion eras as “the 60s”, “the 70s”, “the 80s”, etc.

There is absolutely no need to keep up with the latest spring collection! That’s a marketer’s way to get people to buy more!

Budgeting

This is probably the most boring part of this article, but I would also argue it’s the most important. Budgeting is a skill, and like any skill, the earlier you start, the better. I’ll be honest with you, most adults don’t even budget.

And you can see the consequences: people are in debt, more than ever, and that is partly the reason why you always hear the economy is tanking.

Budgeting is your roadmap to achieving your goal. To get started, it’s as easy as downloading a free budget spreadsheet, many of which are available online. It almost doesn’t matter how good that spreadsheet is, what’s more important is for you to get started.

Once you get started, here are a couple of things you need to keep in mind:

• Make sure you keep track of “small expenses” like a Boost juice here, and a Mars there. These small costs add up to hundreds of dollars – and it’s why some teen have a job but never seem to have any money, even though he/she “didn’t buy anything”.
• Automate your savings. Ubank, for example, has an “automatic contributions” option that helps you withdraw a certain amount every month. Use it so you will consistently move towards you goal.
• Remember to budget your fun. Don’t assume you’ll ditch all your friends and never watch a movie, ever again, just because you want to buy a car when you turn 18. In all probability, you’re going to slip and give up instead. Knowing that, why not instead budget for fun and move to your goal a little slower?

Your Friend’s Effect On Your Finance

Studies have shown that friends have a greater influence on you than anyone else in your life. Your parents may not believe it, but it’s true.

But you already know that. So here’s the thing: if you want to achieve your goal, it’s crucial that your friends are all onboard. If they are not, then you’ll have to find new friends. This is because it’s not possible for you to control your finances when your friends are hounding you to go to a concert which will cost you 2 weeks of your pay!

Get your friends together and tell them of your goals. Tell them that this is what it’s going take. Show them your plans. And kindly ask them if to do things that don’t cost as much – like watching old movies at home, skateboarding, playing games, etc.

If you think your friends are going to laugh at you… well, let’s just say you’ll have to rethink who your friends really are. Having said that, let them know what’s in it for them in this plan of yours. For example, tell them they’ll get a ride when you buy that car you want.

Shop For Bargains

If you want to save a little more money, look for bargains everywhere you go. Always go online to compare your prices because chances are, the stuff online are cheaper. If you don’t have a credit card, there are prepaid “visa cards” that you can buy in the post office.

Talking about bargains, ask yourself if you really need that particular brand you’re hunting down? I’m not saying you should get generics, but maybe there are other brands that are just as good but are currently on sale! Most people, adults included, don’t realize this because once you’re hunting for something, it narrows your vision to that particular thing.

And again, the internet is your friend in looking for alternative brands. You may even find some you never knew because they are based overseas.

Get Educated

Last but not least, ask your parents to send you to personal finance courses.

Personal finance is a huge subject that no one article can finish teaching. After the financial crisis of 2008, there have been a big push for schools to start teaching personal finance classes but even then, it’s often not enough. The reason is simple: your personal finance teacher may be a good teacher, but he/she may not be managing his/her money very well. He/she knows the theory, but real life experience? I’m not so sure.

Instead, why not go out and learn from real world experiences? From people who’ve made it and from people who’ve genuinely made the mistakes you want to avoid?

As you grow up, there will be more things for you to learn, like properties, stocks, options, forex. Get educated of these things early and give yourself a 10 year head start to plan for them.