Where to Begin: Saving and Managing Your Own Money
As a teen, you start taking more responsibility for handling money and choosing how you want to save or use it. Here are a few ideas to help make your decisions easier…and better.
Consider a part-time or summer job. A job can provide you with additional money as well as new skills, and connections to people who may be helpful after you graduate.
If you are filling out a job application for a company with a local office, experts say it’s generally safe to provide information such as your date of birth and Social Security number (which may be needed for a background check). If you are applying in person, hand the application to the manager (not just any employee), and if you are applying online, make sure you are using the company’s legitimate Web site.
“But be very suspicious of online job applications for part-time, work-from-home jobs offered by unfamiliar companies without a local office,” warned Michael Benardo, Manager of the FDIC’s Cyber Fraud and Financial Crimes Section. “They may only want to commit identity theft, not hire you.” (See below for more about avoiding identity theft.)
Open a savings account and put money in it for specific goals. “Some goals will be for the next few weeks or months, while others are for several years away, such as college,” said Irma Matias, an FDIC Community Affairs Specialist. Get in the habit of putting at least 10 percent of any gifts or earnings in a savings account right away. Saving a certain percentage of your income before you’re tempted to spend it is what financial advisors call “paying yourself first.”
Also think about where you can add to savings by cutting back on spending. “Money you spend today is money you won’t have for future wants or needs,” added Matias.
If you’re ready for a checking account, choose one carefully. Many banks offer accounts geared to teens or other students that require less money to open and charge lower fees than their other accounts. “Even if the account appears to be attractive, think about how you’re going to use it — for example, if you mostly want to bank online or with your smartphone — and look into how much that account is likely to cost monthly,” said Luke W. Reynolds, Acting Associate Director of the FDIC’s Division of Depositor and Consumer Protection. “Then shop around and compare this account to what is offered by several other institutions.”
When you open an account that comes with a debit card, you will decide how you want the bank to handle an everyday debit card transaction for more than what you have in the account. If you “opt in” (agree) to a bank overdraft program, it will cover these transactions but will charge you a fee of as much as $40 each time. “One overdraft can easily lead to another and become very costly,” Reynolds explained. “If you don’t opt in, your transactions will be declined, but you won’t have to face these penalty fees.”
You may also be able to arrange with your bank to automatically transfer money from a savings account to cover the purchase. You’ll probably pay a fee, but it will likely be much less than an overdraft fee.
If you’re thinking about using a prepaid card instead of a bank account, understand the potential drawbacks. Prepaid cards often do not offer you the same federal consumer protections as credit or debit cards if, for example, the prepaid card is lost or stolen and used by someone else.
And, while prepaid cards may advertise no monthly fee, they may charge for making withdrawals, adding money to the card or checking the balance. “It’s hard for a prepaid card to beat a well-selected, well-managed checking account for everyday transactions and allowing easy transfers into a savings account,” Reynolds concluded.
Once you have a bank account, keep a close eye on it. Watch your balance the best way you can. For example, keep receipts and record expenses so you don’t spend more money than you have in your account and run the risk of overdraft costs.
Take precautions against identity theft. Even if you don’t have a credit card, you can be targeted by a criminal wanting to use your name to get money or buy goods. So, be very suspicious of requests for your name, Social Security number, passwords, or bank or credit card information.
“Don’t fall for an e-mail, call or text message asking you for financial information,” Benardo cautioned. “Never give out any personal information unless you have contacted the company first and you are sure it is legitimate.”
Understand that borrowing money comes with costs and responsibilities. When you borrow money, you generally will repay the money monthly and pay interest. Always compare offers to borrow money based on the Annual Percentage Rate (APR). The lower the APR, the less you will pay in interest. And, the longer you take to repay a debt, the more you will pay in interest. If you miss loan payments, you can expect to pay fees and have a hard time borrowing money at affordable rates for some time into the future.