Note from editor: Also check out the companion piece to this article, 8 Financial Dangers for the High Schooler.
I am happy to report that I have a really high credit score, and I pay a pretty low interest rate on my loans (house and car — I managed to pay off my college loans already). This saves me thousands of dollars per year. Unfortunately, not everyone can claim this. I want to share some ideas for all high school students so that you can make prudent financial decisions as well.
So where did my understanding of money come from? First off, something happened when I was about six years old that forever shaped how I perceived my family’s finances. We were planning a vacation to Disney World, and I walked into my parents room while my dad was packing. I don’t remember what we talked about, except for the part where my dad grumbled that he was not excited to pay $4 for a hot dog. That moment stuck in my mind forever. I can still picture it, him folding clothes and stuffing them in a suitcase while lamenting over his six year-old son bringing financial ruin to the family during dinner time at Disney World. Oh, the horror!
Ever since that day, I have cautiously assumed that I don’t really have enough money to do too much. I remember being eight years old, on vacation with my godparents, and agonizing over whether to order the McDonalds meal I wanted or the one that was a dollar cheaper. When I was twelve years old, I tried to talk my dad out of taking us to Dairy Queen when we could eat ice cream more cheaply at home. Thankfully, he did not heed my advice on that one.
In addition to having a natural fear of lack of money, I have held a lot of jobs in my lifetime, because everyone else in my family was working too. We had a large family, and everyone worked from an early age to pay for their own frivolities and save up for college, among other things. I don’t remember being excited to work every day, but it wasn’t such a big deal, either. It was somehow, someway, a source of pride to work. Around age eight, I started helping my brother deliver the daily morning newspapers. I eventually took over his route, and I delivered papers every morning until age eighteen, when I left for college. In the evenings and weekends, I was a receptionist at my local parish, and I held a variety of full- and part-time jobs in the summers, including golf course maintenance, painting, more paper routes, and babysitting. It was kind of fun to think that I was getting paid to stay out of trouble. I will never forget the moment — years later — when I was a senior in college (I worked through college also), and I overheard two friends agonizing over the fact that they were going to have to get jobs soon. Getting a full-time job didn’t bother me a bit and, moreover, all the work I had already done gave me an understanding of and appreciation for the value of a dollar. Now when someone tells me how much something costs, I often think of it in terms of how many more hours I will have to work in order to pay it off.
Growing up, when I earned money, I would put it in a federal credit union. What struck me about this was that it was several miles further away from a bunch of other banks that were conveniently located around the corner. My dad explained that the credit union (which we were members of because of his government job) gave a much better interest rate than the nearby banks. I thought about that interest rate every time I drove all the way to my bank to deposit a check.
It always strikes me as odd and wonderful, the little things that affect someone and create a memory or shape a personality trait. For me, financially speaking, it was the luck of being born into a hard-working, large family, with a father who had an affinity to make an extra fifty cents in interest a month and a dislike of paying too much for a hot dog.
These may seem like the strange characteristics of a man who is obsessed with money, but the truth is, I’m not. Quite the opposite, in fact. Because I am naturally careful with what I spend my money on and do not have the inclination to ever go on a shopping spree, I find myself able to focus on things other than money. I buy all the things I need, plus enough unnecessary stuff to seem like a normal consumer, and I don’t think about money at all, except for the end of the month when bills are due.
The point is, money should not be the main focus of anyone’s life, but understanding money, what its purpose is, and how it works can make a major difference someday — like whether or not you can actually own a home. Therefore, it is a great idea for everyone to know the basics before leaving high school. This is not the article to teach you how to get rich. I don’t even think that is what is important in life. However, if a few basic principles can get you to use your money more wisely, then that can help you use your money for greater good. So, here are a few things I think every high schooler should talk about with his parents and consider doing. This advice will not work for everyone (and some may be very opposed to it), but it’s worth considering.
I recommend that high school students:
1. Open a Bank Account
If you are under the age of eighteen, you can open a joint checking account with your parents. This can come under a variety of names and specifications, so talk to your bank about each one.
If you need to pay for something each month, and your parents give you that money, it would be better for you to have them put the money in your bank account and leave you the responsibility of paying. For example, if you need $50 monthly for gas for the car, it would be better for your parents to put the $50 in the account each month, rather than giving you money each time you go to the pump. If you waste the money on something else, you will have no car for the rest of the month, but you will have learned a lesson that will help you for the rest of your life. Trust me, if you have to spend three weeks with no driving to friends’ houses, missing baseball practice etc., you will learn quickly how to make sure to budget for gas each month.
If you are the type of student who gets an allowance for these type of things, maybe you can talk your parents into incentive pay, like getting a bonus $20 for keeping your room clean or helping cut your elderly neighbor’s grass.
If at all possible, try to get an account that is impossible to overdraw, or at least alerts you immediately when overdrawn. Paying those additional fees is very annoying, especially since getting an overdrawn fee usually coincides with not having money to pay the fee.
2. Get a Job
By far, the best thing you can do to understand and appreciate how money works is to get a job. There are lots of opportunities, especially for those of you over sixteen. You could be a cashier, stocker, waiter, cook, receptionist, librarian, landscaper, tutor, babysitter, music teacher, personal assistant, web designer, concession stand worker, movie theater attendant, lifeguard, farmer, paperboy, etc. You can work at an amusement park, the fair, or as a musician at a cafe.
Part of this should include making a résumé and keeping it current. You can start with a template in Google Docs, or in Microsoft Word, and it is pretty easy to go from there. Be careful to keep it short, to the point, and presentable. A high school resume should have section on education, work experience and then whatever else works- skills, interests, language abilities, etc. If you have a college counselor, ask him to look it over before you start presenting that résumé to prospective employers.
Once your pay starts coming in, have a plan that balances savings, charity, and spending. I recommend that anyone in high school put a portion of their earnings into savings, donate another part to charity, and the rest can be for consumption or helping the family to pay for necessities. If you are attending private school, you could also allocate a portion to pay for your education. Trust me, students appreciate school a lot more when they realize that it is a sacrifice to be there.
3. Invest
This section is meant in no way to make you earn lots of money (in high school) by investing, and I do not recommend putting much money into investments while in high school. This section is meant to get you thinking about how investments work, and so you are aware of what you can do with larger amounts of money once you have your first job out of college. If you don’t think you should start saving/investing as soon as you get your first job out of college, then you would do well to study the principles of compound interest. Too many people wait too late to start (or never even begin) investing. In fact, over 30% of Americans have no investments whatsoever, not even for retirement.
You can’t open an investment account until you are eighteen, but you can get your parents to open a small account and let you make the decisions on what to buy and when to sell.
When it comes to small amounts of money, most brokers will eat up all your money in fees. However, some companies charge less than others, and there is at least one that charges no money whatsoever. Do some homework, and you could start investing with as little as $10.
Remember these three rules when it comes to investing:
- Don’t invest money you can’t afford to lose;
- Do your research. Learn about P/E ratios, how to read SEC filings, and all the little things that will make you a wiser investor;
- Diversify.
If you have a job, you can put earned money into a Roth IRA, and you can still use that money to pay for college.
No faith in the stock market? Ok, try buying bonds or a certificate of deposit from your bank.
4. Study Big Purchase Decisions
Ask your parents if you can join them on big purchase decisions: a washer, refrigerator, car, house, new windows, and couch are just a few examples. This will help you learn how parents budget, weigh one option against another, avoid buying unnecessary products, etc.
5. Learn How to Budget
There are a lot of budgeting apps for smartphones. Get one of the free ones. Don’t have a smartphone? Do it like we all did before 2000 — with a notebook. Make a monthly plan. Keep track of purchases. Try to see how to budget better each month.
6. Practice Financial Asceticism
Pick a couple of weeks each year in which you will try to spend no unnecessary money at all. My wife and I try to do this for a whole month once a year. During our month, we try to only buy groceries and gasoline and pay the normal bills. All other purchases that can be put off or eliminated are. This is really hard to do, but it gives you an interesting perspective on all the stuff you buy that you don’t really need.
7. Get a Credit Card
This last point is likely the most contentious, but if you have self-control, then, along with your bank account, get a credit card that you can use to buy stuff and then pay off with the money in the bank account (discussed in point 1).
If you are under eighteen, you can become an authorized user on your parents account. You need to convince them that you are responsible enough to be on this account, and then you can use this to help start building credit. When building credit, use a credit card (debit cards will not build credit) to buy something inexpensive each month, which you can then pay off in full at the end of the month using the money from your bank account. Your credit score will be lower if you use up most of the limit on your credit card. So, in order to better build credit, you should not use up more than 10% of your borrowing limit each month. For example, if you get a card with $1000 limit, don’t spend more than $100 on the card in any given month. Also, paying the high credit card interest rates do not help you save money, so make sure to pay off the balance in full each month before you are charged interest on the account.
Review your statements regularly to ensure they are correct and to review your finances. If you notice yourself spending a large percent of money at restaurants, for example, try to reconsider the temptation to eat out all the time.
Also, check your credit every four-to-six months. Equifax, Experian, Transunion all provide a free credit report once a year. Split them up to get a free report every four months. For example, you could check Equifax every January 1, Experian every May 1, and Transunion every Sept. 1.
I add this point last because, in addition to being a great way to build credit and learn to manage money, a credit card can also be one of several risks to your financial situation that I will discuss in a later article. A credit card, like many tools, is an opportunity to exercise a virtue. It’s also an opportunity to rack up debt at a ridiculous interest rate.
In conclusion, there are a lot of ways to get money and plenty of ways to not have money anymore. I hope you keep in mind that being responsible with your finances is extremely helpful to you, your family, and billions of less fortunate people you can serve with the money you make and save. (Yes, if you have more than $2 to spend per day, there are literally billions of people less fortunate than you.)