Are You Smarter Than a High Schooler?

Every year in May and June a lot of teenagers head out into the “real world” for the first time. Whether you’ve got a teenager of your own, or just want to make sure you’re all caught up yourself, here are 6 things a high school graduate (and everyone else) should know about money.

Time is On Your Side – Especially Now. Compound interest is “the most powerful force in the universe” and the longer you let it work for you, the more powerful it is. Get started saving in an interest bearing account NOW, even if it’s just a little bit to begin with.

Pay Attention to Your Spending. If you don’t know how much you’re spending every month and where, you can’t begin to understand how to budget and save for bigger things you’ll want and need later. You don’t have to budget down to the penny but you need to know the trade-offs you’re making when you buy something and spend intentionally – not carelessly.

Debit Cards vs Credit Cards. The difference between spending your own money directly from your checking account versus borrowing money from a credit card company to spend is huge, but can be easy to miss. Credit cards can be a valuable tool for building a credit history but there is a cost and can quickly end up costing you a ton of money in interest. The best approach if you want to build credit is to use a credit card like it’s a debit card. Only spend what you have (and hopefully less than that) and pay it off in full every month.

The Downside Of Interest. Compound interest is great when it’s working for you. But teenagers should understand how quickly it can work against you too. Credit card debt is easy to create – and hard to get rid of. Anything you don’t pay off right away gets more, and more expensive every month that goes by. Credit card companies WANT you to carry a balance and pay interest, it’s how they make money. Don’t mistake the minimum required payment for what you should pay.

You Don’t Just Pay Taxes in April. If you get a job that pays $13 an hour and work ten hours a week you should have $130 in that first paycheck right? Nope. Federal and state income tax, social security, and medicare get their cut first. And there may be more depending on where you live. Understanding the difference between “gross” pay (the $130 you were expecting) and “take-home” pay (what’s actually in your paycheck) is key to knowing how to live within your means and not spend more than you can afford.

Have a Plan. It doesn’t have to be complicated. You don’t have to know everything. But if you don’t have a plan for your money, the billion dollar advertising and marketing industry certainly does. You’re bombarded every day with offers of ways to spend your money. No one else is going to care about this the way you do so you need to take charge and take control.