A local DJ did a “speech for the high school graduates” a few weeks back. A main theme of this speech was how “everything you think is cool now is totally lame in the real world.” E.g., movie theater clerk jobs and converted bedroom in the parents’ basement. Basically how different the “real world” is. It was very funny, but I’m not sure I agree with that financially. While I am still trying to sort out personal finance for grown-ups, here is my take on personal finance for kids.
Lessons I wish I had absorbed properly as a high school student:
- Welcome to retirement…?! Your financial life starts now, and its flows continuously into adulthood. If you feel like your cash is pizza money for now until you graduate college, when you’ll need to get serious, you’re making a big mistake. The only reason people go work is because they have not saved enough or are otherwise not in a position to do otherwise. If you can save loads of your money and go retire earlier than the usual gloomy old age you hear about, why not start now, while your existence is still subsidized by your fam?
- Congratulations, time to save. If you have a part time job or allowance, you can start amassing your wealth now. Even microscopic babysitter or dog-walking earnings should fly right into your savings account and be the first residents of your illustrious riches. My first job paid $5/hour and I couldn’t see how $20 or $50 could be good for anything but buying myself things. It’s easy to take a small cash earning straight to CVS for goodies. But if you use size of wage as an excuse to spend rather than save now, you are setting yourself up for a lifetime of self-pitying excuse-making. No wage or salary will ever seem high enough to allow you to save if you have a sour attitude. But generally it’s easier to control your saving than your earning as a young person.
- Junk avoidance. Don’t get preoccupied with junk YOU can’t afford, and do not hassle your parents to subsidize your junk. There’s no point trying to keep up with any designer jeans or pumped out kicks other kids might be wearing because those kids will probably be cash-poor or worse in a few years anyway. Also, what you think looks cool now you will laugh at later. When I was in high school, the must-have for cool guys and girls like myself was a crisp pair of JNCOs. These went for about $50 in 90s dollars. Seemed like a good idea at the time…
- Savings is not checking. A savings account created and nurtured by your parents does not constitute a fun-times checking account in college! I made this mistake. If you do it, chances are you will look back and feel bad for abusing your parents’ gifts and wishes. Unless you are really cold and cruel. Either way you would be broke, loser.
- Emergency funds for kids. Nothing screams out “helpless child” like a college kid who screwed up and needs money from home. Do you want that to be you? I didn’t think so. Whether your parents say the purse is open or closed after dropping you off at school, start being a grown-up now and take care of yourself financially as well as physically. Make an 8-month emergency fund before you leave for college, even if your monthly costs are only going to be your cell phone and eating out a few times a month. Throw in a little extra for good measure in case you break your ankle doing ice rink shenanigans and need a trip to the ER. Totally hypothetical.
Teenage cash flow. DO NOT, under any circumstance, carry a balance on a credit card. I don’t even like the idea of kids having credit cards, but it is necessary for building a strong credit score.* But you know what will crush your credit score like a Bruins fan last night? Late payments and unfavorable credit utilization ratio. Use a credit card to establish credit history, but buy only what you can pay for in cash, or else you’ll be riding a nightmarish credit merry-go-round like that weird scene in the original Willy Wonka movie for a long time. There’s a reason the average household carries on average $16,000 in credit debt – because they buy more than they can pay off, and can’t get out from under it.
*Hats off to any kid who actually knows what a credit score is for. More on that later.
These are the fundamental lessons I learned (sometimes the hard way) about how to transition smoothly from financial childhood to financial adulthood. Maybe sounds familiar to you adults as well.
Here are some more advanced PF ideas I have lined up for teens in a future post maybe:
- Real costs for things you have never had to pay for. Example 1: ER, $150.
- Saving for advanced teens: Roth IRA
- Student loans are for tuition, not Toyotas.
- Finacademia, Part 1: Tuition is a product colleges are trying to sell you.
- Finacademia, Part 2: Pick a major that won’t leave you homeless.
- If you’re selling your blood, you’re doing it wrong.