It seems like more and more, you're expected to make huge, life-changing financial decisions when you're young, despite not having access to a lot of information. How are you supposed to know how to manage money as a teen when you usually don't even have a salary yet? It always seems easy at first, but it feels more complicated the more you look at spreadsheets. It's hard not to worry about money, and it's pretty much impossible to stay out of debt. So what can you do to manage the next few years? The same thing you do in school: learn.
So how does one get important financial knowledge? Sometimes, it's by-the-book studying. Sometimes, it's simply unavoidable life experience. Hopefully it's less of the latter, but there are plenty of resources on personal financial literacy for high school and college students out there that you can learn from, luckily.
Let's go over some basics of finances and get us up to snuff!
Just like the light side and dark side bringing balance to the Force, there are two ways to get your money situation under control: reduce your spending, or earn more. That's it! Your financial situation might get complicated, and as you get older, it might get a great deal more complicated, but you're always working with a system of pluses and minuses.
To learn how to watch these things, you must first understand where your money is going and where it's coming from. So let's figure out how to balance a checkbook together.
It might seem really antiquated - why would you need physical checks when you have a debit card? - but physically writing out numbers while balancing a checkbook is a good idea to do for the first few months of having your own account. That way, you can get the swing of things and see how it works.
Track your transactions as they happen in the debit column (for example, $50 for a dress). Then, put that number with a minus sign in the balance section (-$50) and subtract it from your current balance.
If you used a check to pay for something, write the check number next to the date you wrote it. Checks frequently take a few days to be processed, so it's smart to write this down as you're writing the check itself. If you promised more money in your check than what you have in your account, it will bounce, which is big trouble. You don't want to overdraft your account and end up with fees!
Track your income as it happens. Put that in the deposit column (for example, you got $100 from selling your art) and add it to the end with a plus sign (+$100). Then, add it to your current balance.
This is smart to do while you're filling out your deposit slip at the bank.
At the end, you should have the same amount in your account that's on your bank statement. You can double-check by adding everything in the deposit column and subtracting everything in the debit column and then adding in your starting balance. Make sure to stop at the date when your statement was issued, and don't factor in any checks that you've written out before that date that aren't listed on your statement as having been cashed.
If something is off, double-check your work. If you've checked it several times, check your bank statement to make sure there aren't any suspicious purchases.
Of course, if you're using online banking, you'll be able to simply log on and look at your expenses as they happen. You don't have to balance your accounts by hand as much these days, but physically writing things out for the first few months you have a bank account can help you get a better feel for things.
So you can spend as much as you want, but once you hit zero in your checkbook, you're done, right? You can never actually purchase beyond what you don't have, right? Once you're at zero, you can't do anything else, right? That's what living within your means means, right?!?
Of course, we don't actually live in a world like that! Your accounts can and will go into the negative, sometimes as a result of fees. One of the most common types of fees is an overdraft fee, which happens when you try to take out more money than you have. Not only are you going to be at zero, but the bank will charge you even more!
And besides fees, there's also the fact that you will likely be in debt at some point in your life. About 80% of Americans are currently in debt, but that's not always a bad thing.
In life, there are going to be a lot of things you want to buy - a car, a house, an education - that you simply won't be able to afford on your own, even if you saved for years. Debt is necessary in America, and if you're wise with your debt, it should help you achieve more in your lifetime, rather than hold you back. That being said, digging yourself into a hole by taking on unnecessary debt with no thought of the consequences can get you in a lot of trouble.
This is the unfortunate reality: Debt is necessary, but it's risky. It's really important to understand how it works.
While you'll likely spend more money in the next few years, you'll hopefully earn more money as well. Here are some possible avenues to consider for earning money. The biggest thing to consider is how to earn the most money for your time. How can you make your time generally worth more?
There are two different methods of earning money: active income and passive income.
After taxes, Medicare, and Social Security costs have been taken out of your check, you have your income. While there are ways to talk up your salary and handle negotiations wisely, how much you make is usually set by your employer and not really changeable.
Millennials and Gen Z-ers are considered to be the "1099 generation," as they frequently have side jobs or side business (such as a craft store on Etsy) to help them get by.
Commissions or Tips
Whether you become a Manhattan-based finance guru or a waitress, the added benefits of certain sales can definitely add to your earnings.
Stocks are essentially a tiny piece of a publicly traded company, and if your investment is successful, you might get dividends every quarter (four times per year). The stock market is a risky endeavor with constantly changing variables, but investing a small amount can lead to more income over time. There are several ways to get started, and many brokers will have investment ideas for college students.
In essence, you can behave as a bank and lend money out to companies. Then, they pay you back with interest. Usually, the safest investment is a government bond.
We've talked about balancing a checkbook. We've talked about necessary debt and spending. We've talked about different ways to earn. Now, let's look at how you can look at all of this information critically.
A budget is simply an organizational tool you can use to look at your financial situation at a glance. Are you consistently at a net loss every month? Balancing your checkbook can tell you that it's happening. A budget can tell you why.
Personal financial literacy for teens isn't considered to be as complicated as adult financial literacy because adults usually have to deal with more taxes, more insurance, and more sporadic payments. But it's just as important for you to know about these things when planning for the future.
These sobering financial literacy statistics might seem scary, but knowledge is power.