Omarlyn Martinez, a Boston teen, worked full-time this summer in hopes of paying for his college tuition and also to save money. Since Martinez comes from a single parent household, saving money was always difficult, especially since he only had a checking account at first. Now, he’s able to save with a savings account. Martinez is hoping to get into investing and aspires to buy a house for himself, and one for his mom in the Dominican Republic.
We all struggle when it comes to saving money. Despite some of us having bank accounts and reminding ourselves not to overspend, we do it anyways.
Jeff Paddock, a Financial Empowerment Coordinator at Inquilinos Boricuas en Acción, is a financial coach for low-income families. He guides people of all ages on saving, as well as encouraging them to reach their financial goals.
“For kids, I recommend getting in the habit of putting change away in a jar in their room,” said Paddock. “When you become a teenager, I recommend setting savings goals. This is something that is very important.”
Getting in the habit of saving early fosters discipline and control. Paddock recommends for teens to open a savings and a checking account because “once they have a steady income, they should set up an automatic transfer of a few dollars from the checking to their savings. This will build the habit of saving a little every month.”
Kathy Lee, a freshman at Northeastern University, does not have her own bank account, but has one under her parent’s name.
“I was told to save money by my parents. But that never ends up the way they expected it to be,” said Lee. At a young age, her parents advised her to save all her money from Chinese New Years. “However, much like a child, I did not learn my lesson,” she said. “I still spend a bit here and there but it has decreased quite a bit.”
In her spare time, Lee likes to shop. “I only make the purchase if I believe that item is absolutely necessary and practical for my daily lifestyle.” Following this method, Lee learned to save money little by little.
Paddock has two tips for teens to practice when preparing for their first big purchase.
The first tip consists of three rules:
Rule one - open a bank account so that your money is safe. Storing your money in your room could be dangerous because it could be lost, stolen, or destroyed.
Rule two - track how much money you have in your account.
Rule three - spend less than what you make. Even though it sounds simple, it could be difficult.
The second tip is to open a separate emergency savings account where you put a little bit of money away. “Emergency savings are like first aid kits. They should be close, accessible, and hidden away,” said Paddock.
An important things to do is to calculate your monthly income, as well as bills or monthly expenditures you have to pay for. Next, generate a budget that includes how much you’ll spend on eating out, entertainment, social activities, shopping for clothes, etc. Subtract your monthly expenses and social spending from your monthly income, and you’ll get an idea of how much you spend monthly. That way, you can estimate how long it will take to save for that large purchase.
Jeff Babcock, a Senior Associate at WS Development, said an overarching principle is that the earlier you start saving, the more time your money has to grow. For this to happen, Babcock recommends that teens seek out a savings account that has a high interest rate. If you want to save even more money, finding an index fund could be an alternative. Index funds are composed of a variety of stocks and bonds, Babcock explained.
“You're investing a little bit in a lot of different things, diversifying your risk. When you invest $100 into index funds, it can be spread across all these investments, industries, or even the entire economy. ” The downside to this is that there is a bit more risk at play, and you may lose money.
Once you get in the routine of saving, you can decide whether to put that money in a low-risk savings account or higher-risk index fund. Students can open a brokerage account to begin investing in index funds even though it is a bit more advanced and complicated, so research is crucial.
“It is important to know what investing is like. Time is really your best friend when it comes to saving money, the sooner the better, for sure,” said Babcock.