5 ways teens can learn good money habits
If you’re a tween or teen trying to earn money or save for a goal, it can be hard to sort out the mixed messages about money you hear from the media, your friends — and even your family. Sometimes parents don’t like talking about money, or they may not always practice what they preach.
How can you be smart about your own money? Take advantage of this down time in quarantine to teach yourself smart money management skills that will serve your future. As you can see, being a savvy saver and being on top of your credit in times of unexpected financial stress, such as COVID-19, is a critical skill to develop. If you’re disciplined, it’s quite simple. Here are some healthy financial habits to help you be more on top of your own earning, spending and saving.
1. Learn how budgets work
Now is a good time to find an easy-to-use online budgeting tool or app. Budgets help you prioritize your spending and be aware of your cash flow — incoming and outgoing. There are even features designed to help you save for specific goals like prom or college.
One of the great benefits to these apps is that you can see all your account balances in one environment. You can learn tips for keeping track of the money you earn and planning ahead.
2. Limit spending
Budgets are about making decisions. How much money do you want to save, and how much do you want to spend? First, figure out how much money you’re earning (through allowance, part-time work, etc.) per week or month. From here, you can identify your needs versus wants. This enables you to set your goals.
Do you have a specific item you want to buy, or an event (like a trip) you want to save for? Perhaps you want to contribute to your college fund. Decide a reasonable percentage of what you earn to set aside. Some banks even have an auto-save feature where you can elect a specific, recurring dollar amount to be moved from your checking to your savings account. If it’s out of sight, you’re less likely to spend it.
3. Save what you can
As the saying goes, “It’s not what you make, it’s what you save.” Even if you’re not earning much yet, commit to saving a small amount every time you get money from your allowance or part-time job. If you start setting aside a little bit each time you earn in, you’ll have this habit for life. Your future self will thank you!
4. Avoid impulse buys
When you see something great that tempts you to spend immediately, consider taking a day and sleeping on the idea. Remind yourself how long it took you to earn the cost of the item. If the video game or pair of shoes you want would cost 10 hours of working at your lifeguard job, you may not be so quick to make that purchase.
Rest assured that this is not the only opportunity you’ll ever have to buy that item. Another idea is to decide to take at least a day to think about any purchase that is over a certain dollar amount (such as the equivalent of 3 or more hours at your part-time job).
5. Use credit carefully
Once you hit 18, you may be barraged with invitations to apply for credit cards. When you go to college, it’s a good idea to apply for at least one credit card to start building your credit history. You can use the card to occasionally make a small purchase that you know you can pay off when the bill is due.
But remember, anything you buy on a credit card has to be paid off, and credit cards charge interest when you carry a balance — making whatever you bought with the card even more expensive.
If you can’t come up with the money to pay a credit card on time, or simply forget to pay it when it’s due, those late payments can lower your credit score, which is like a grade given to your credit history. And if you max out your credit card through over-spending, that will also lower your credit score. A good rule of thumb is to never charge on credit what you can’t pay for in full with cash.
Why should you care about your credit score? A poor credit score makes it harder for you to borrow money later, for example, when you might want to buy a car. Overall, learning good habits like budgeting, saving and keeping track of your spending now will help you enjoy a more financially sound future.
This article is not intended to provide any credit or financial advice or guidance or to recommend the taking of any specific action. This article is intended solely to describe the possible impact that an action may have on a credit score that is generated using the credit scoring models of VantageScore Solutions, LLC. The possible impacts described herein are based on hypothetical situations and the actual impact on a credit score may vary depending on various factors, including, among other things, a person’s actual circumstances and history.