Dear Ask Bankable:
What can I do as a teenager to have financial freedom?
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Money Master says:
Of course, the first way is to earn your own money. Be entrepreneurial. You could go the classic route and babysit, mow lawns or apply for a job at a local restaurant or grocery store. But why not play to your interests and strengths? If you’re a sports addict, you can get paid to officiate Little League or soccer games. If you’re proficient at a musical instrument or in math, offer lessons or tutoring for younger kids. If you’re a computer geek, offer help to older folks at a reasonable hourly rate. (Advertise your services on a neighborhood listserv, if there is one, and with a sign at the local supermarket.)
Once you have that money, enjoy some, but also know how to save it. In the United States, only 53% of 15-year-old students have a bank account, according to a Programme for International Student Assessment study released in 2017. Opening a checking or savings account is the fastest way you can gain financial freedom.
Banks can’t legally open accounts for people under 18 unless they are joint or custodial accounts set up by an adult. Yes, it may be annoying to have to link your account to your parents, especially if the bank notifies them of your spending habits. But your teenage years are a great time to start earning interest and figuring out how to manage a debit card.
Look for an account that is designed to provide free services even if your balance is low. For example, Capital One’s online only teen checking account gives you (but not your parent or custodian) a no-fee debit card -and pays a 0.25% annual interest rate to boot. (It will automatically convert into an adult account when you hit 18.)
No, you won’t get rich on 0.25% interest. To really find financial freedom, you need to learn how to invest. And just as in school, you may have to do a lot of research. About 22% of U.S. teenage students lack basic financial literacy skills, according to the PISA study. Stay ahead of the curve by creating your own financial knowledge base.
Adam Carroll, author of The Money Savvy Student, suggests that once your savings hit the $500 mark, you take a (safe) dive into the world of investing. Kids and teenagers are able to invest with Stockpile, which offers fractional shares at 99 cents per trade, so users can invest just the amount of money they want without having to buy a whole share. As with banks, those under 18 must open the account with an adult.
“Young people really make great individual stock pickers,” says David Kretzmann, an analyst with the Motley Fool. “They are really on the cusp of emerging trends and technologies. They see what is in and what’s out. That’s a great, interesting mindset as investors.”
If an app isn’t for you, find a low-cost index fund, like an ETF from Vanguard, to get instant diversification, says Kretzmann. You can also link your savings account with a brokerage account, which you can use to buy and sell stocks, bonds and mutual funds. But remember, he says, any money you invest in the stock market should be money you don’t want to touch for next five to 10 years.
Which brings us to the question of college—and whether you’ll be using your savings to help pay college expenses. So have a chat with your parents about how much you’ll be chipping in for college, before you get into any longer term investing.
Even if you simply keep your money in a checking or savings account during college, that bodes well for your wealth. Carroll notes teenagers who begin school with an emergency fund have a greater likelihood of finishing college—which, when you think about it, is the best way of making sure you have financial freedom in the long term.
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