Seven Pieces Of Financial Advice For A High School Student

My niece is a wonderful young woman – a good head on her shoulders, decision making as strong as you could hope for in a high school sophomore, and an entrepreneurial spirit. My only concern about her is a sense that she hasn’t quite figured out the value of a dollar and that she’s prone to credit misuse.

Last night, I spent some time thinking about the things I wish she knew right now at this point in her life so that she wouldn’t go on to make horrendous mistakes with her finances later on like her uncle did. Here’s what I came up with, and they’re probably applicable to any high school student with a level head.

Do not carry a credit card balance. It’s okay to get a credit card, but pay off the entire balance each month. If you’re tempted to use it to buy something that you can’t otherwise pay for, don’t. Period. Let’s say you buy a Nintendo Wii and a few accessories and put $400 on your credit card, then only make minimum payments for a year. On a typical “first” credit card with a 19.9% APR, you’ll have just watched $80 vanish into thin air. Now, multiply that by twenty and you’re looking at the situation that the “average” American is in, watching literally thousands a year just vanish because they carry a credit card balance.

Put a small amount in the bank each week and forget about it until you’re about to make a big purchase or a true emergency comes up. Let’s say you can put $5 in the bank every week starting on your 16th birthday. That adds up to $260 a year, so if you cash out at your 26th birthday, you’ll have deposited $2,600. But it gets better – you can easily get a savings account that earns 5% interest. You’ll actually get out $3,352. The bank will give you $752 over that time.

Learn how to learn. Most high school classes are pretty easy for a bright person and don’t require much effort to get through. It’s really tempting to take easier options and not worry about it; instead, always take the hardest one you can take. It will force you to learn how to learn, a skill that will serve you well the rest of your life.

Start a side business. My niece already has a small babysitting empire, but most teenagers can find a way to earn some money. Many parents in my area encourage their kids to get jobs – instead, I encourage kids to start a side business. Mow lawns. Trim hedges. Scoop snow. Start a topic-oriented blog (meaning a topic that isn’t you that others might find interesting).

Take a leadership position. Join an organization and make an effort to be involved with it. Eventually, take a leadership position in it. Why? Learning how to manage people and make choices that affect others is another skill that will serve you throughout your life – and if you learn how to do it well, it will make you a lot of money.

There is no such thing as a free lunch. If someone is offering you something for free, there’s usually something they’re getting out of it in return. A free t-shirt is probably an advertisement. A free web service is likely littered with ads in some fashion. The better you are at spotting why things are being given away for free (or for really cheap), the smarter you’ll be about buying things and the less you’ll spend in the process.

If you’ve discovered something you enjoy and you’re actually good at, do it a lot. Almost always, there’s a way to make money from a highly developed skill. Anything from playing a guitar (music can be marketable, teaches hand-ear and hand-eye coordination and dexterity) to playing a sport (leadership skills, health) can work. It’s especially nice if there’s an obvious career path from it, but don’t let that limit you. Even better, if you can find a way to turn that thing you do into a side business, you might be setting yourself up for the long haul.

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  1. dong says:

    I would advice start contributing to Roth IRA if you’re earning money, and make some index fund investments. It doesn’t get better than barely paying taxes in HS and then getting a long period of tax free growth.

  2. Joy says:

    I totally agree about the Roth IRA… I’m in my mid 20’s and after meeting with a financial advisor I was kicking myself for not starting one in highschool. Most high schoolers have very few (if any) bills and a huge disposable income. I worked quite a lot in high school and most of my money was wasted on things like movies, food and clothes (I also saved a bit for college). I wish I would have but it to better use! With all of those years of compounding interest it would have made a HUGE difference for retirement.

  3. Aaron Stroud says:

    Trent, those are some really good pieces of advice. The third and fourth suggestions are particularly valuable and often forgotten.

    Most bright students do not find highschool particularly challenging. And because of this, they often go into a little shock during their first year of college. A common response is to withdraw, because the prospect of *actually working* can be a little daunting. I know it was for me my first year.

    This idea of working is particularly important in the information age. As many bloggers have demonstrated, there is a huge wealth of opportunity out there for individuals who (1) know how to work, and (2) are wiling to work hard.

    The sooner one learns to do this, the sooner they can start improving the world (and their pocketbook) by offering useful services, information, or products!

  4. Adrian says:

    Up until I went to college I always put at least 30% in the bank (usually savings and CDs). During the summer I would make a lot more and would often put all of my paycheck in the bank. By the time I got to college I had several thousand saved up.

    My father-in-law would collect “rent” each week from their kids ($5-15, depending on how much each kid was making). He would take that money and stick it in the bank.

  5. jtimberman says:

    “Do not carry a credit card balance.”

    Considering that most American adults aren’t disciplined to pay off their credit card balance every month, it is completely unreasonable to expect high school age kids to be this responsible.

    Don’t get a credit card. Period. There is absolutely no reason to have a credit card. The need to build credit is a MYTH taught by the CREDIT INDUSTRY. They want people to BORROW MONEY. The FICO score – your credit rating – is a number that shows how much you like to borrow money and stay in debt!

    This blog has too many posts that talk about “being responsible” with credit balances and paying them off every month.

    Here’s a new freaking concept: be responsible with your MONEY and BUDGET it appropraitely every month.

    Give your money a plan, and you’ll know where it goes. Give in to impulsive spending on credit cards (because thats what happens, no matter how much you lie to yourself), and you’ll wonder why you’re always broke.

  6. Unfortunately, many high school students will not read this blog. I’m not sure if financial education in high school has advanced since I attended, but I think there is a greater need to teach high school students how to balance checkbooks, avoid debt, and understand the power of compound interest.

  7. dong says:

    I’ve had a credit card since college and I think it’s actually been incredibly useful and convenient. I don’t want to carry my checkbook, or hundreds of dollars in cash around. Obviosulys credit cards are not for everyone, but I think Trent’s right that something can be gained by RESPONSIBLE use of credit card. Paying off your credit card every month does improve your credit score….

  8. Sailsa says:

    I agree with Dong and would have them start a Roth as soon as they start filing a tax return. I helped my two younger brothers set up Roth IRAs when they were in HS and they are now 21 and 23 and have $16K and $18K respectively. Even if they never put another penny into the accounts, they will have a sizable amount to withdraw tax free at retirement. However, now that they’ve seen their money grow and have an understanding of how saving and investing works, they are trying to continue saving and putting as much as possible into the accounts each year.

    I actually did the same thing in HS but had to empty most of my Roth to pay for the last year of college which was the best investment I ever made. If I didn’t have the money it would have taken me at least another year to graduate as I would of had to work and go to school only part time. Instead I was able to graduate and spend that year working at a higher salary.

  9. FIRE Finance says:

    To accomplish what Trent has set forth, one of the most important habits that a youngster can do with is to set goals and accomplish them in a planned way with discipline. The earlier an individual inculcates this habit the better it will serve him / her throughout life.

  10. Looby says:

    @Jtimberman I have to disagree, I have had a credit card since I was 17 (now 26) and have never carried a balance. I use it for booking flights home at holidays and for purchasing books etc online when there are definite advantages to using a credit card. (Some budget airlines charge extra for paying with a debit card). I think it’s unreasonable to assume high school students are unable to be responsible with money. Just because they have access to credit doesn’t mean they will use it carelessly.

  11. !wanda says:

    @jtimberman: I’ve had my own credit card since I was 20 and have paid it off completely every month. You seem to think that people are incapable of using a credit card responsibly and within a budget, but that’s simply not true. The higher FICO score from having a credit card is a side benefit, not the main reason why I have one.

    Most high school students don’t need a credit card, but if Trent’s niece has one, it will only help her to use it responsibly.

  12. jtimberman says:

    Looby, of course you have to disagree. I am attacking something that you believe to be a positive truth, when in fact it isnt. Convenience isn’t an advantage, its a trap.

    !wanda, statistically speaking, most Americans are in fact irresponsible with money. Have you heard about the subprime mortgage meltdown? Those are people who were PROVEN to not be responsible with money, which is WHY they got a subprime loan. People who pay off their credit card balance every month are lazy, and they’re the definite minority. Why lazy? Because if you have the money to pay off whatever you spend on the credit card, why don’t you budget that money to be spent that way in the first place?

    But you’re not going to listen to me. I accept that. You’ll keep doing what you’re doing thinking it is the right thing to do because you’ve been doing it since you were 20, so you obviously know better than I do.

  13. Rick says:

    Yes, and statistically speaking, most Americans are simply average.

    I agree that sometimes you simply do need a credit card. I got one when I was 18 and in college, because I needed to buy things online. In most cases, there is simply no other way to buy things online that by using a credit card.

    Maybe it’s like sex. You can tell people not to have sex, but they simply will anyway. So maybe you should teach them to have sex responsibly. People will get credit cards anyway, usually out of necessity for reasons like I already mentioned. So you may as well just teach them to use credit cards responsibly, rather than not at all.

  14. jtimberman says:

    Rick, I have no delusions that I’m going to teach anyone here anything. Just like the typical commentors on Getting Rich Slowly and Lifehacker, everyone here seems to be way too smart to learn anything.

  15. guinness416 says:

    I’d advise any high school student to get a job. In my case it was working in pubs and hotels, but it could be a whole range of other things. Benefits: independence, spending money, responsibility, and a chance to test out working for a living.

    I’d also advise saving for travel. I took every opportunity to visit new places and work abroad as a teenager and college student, and while I still travel a lot like most adults haven’t got the time for long vacations or working/volunteering abroad any more.

    I didn’t put a penny into IRAs or their equivalent as a teen and don’t regret it for a second. The travel and working experiences I had were far more valuable.

  16. dong says:

    jtimberman – we don’t need to get angry here. I’m glad the Dave Ramsey approach has worked for you – and lots of other people. There’s no question too many people are beholden to debt. However, Dave’s way isn’t the only way. It may be the only way for some people, but other ways work for other people. Plenty of people use credit card for convenience reasons. They budget their spending using a credit card instead of getting cash or writing a check. They earn a little interest, and don’t have to worry about losing the money or check.

  17. Robin says:

    jtimberman,

    Though it’s nice to see someone so devoted to Dave Ramsy, you’re making some false assumptions. First, you’re saying people who use credit cards don’t budget. My husband and I budget every penny, and we both carry a credit card (mostly used for gas and the occasional time when we’re caught without cash). We pay the entire balance off every month (or every 2 weeks, really), and have never paid a penny in interest.

    One of Dave’s big things is “personal responsibility.” Listen to him long enough and you’ll hear that the problem is not entirely the credit card company’s fault… a lot of it lies in people being dumb with credit. If some of us choose to use it to our advantage, so be it.

  18. MossySF says:

    Something more relevant for a high school study. Study harder — earn scholarships, earn AP credits (either by taking the classes or just taking the tests on your own), plan for 2 years of community college. Do all this and you may end up able to get a college degree at a minimal cost. No better investment than that.

  19. Ryan says:

    jtimberman,

    I have to agree with many of the other posters. Yes, credit cards are not 100% necessary but very few things are. I’m 15 and have a Visa checkcard. I plan to get a credit card once I can drive. If you don’t carry a balance many credit cards will give you money in the form of cash back or rewards. Plus, I believe having a strong positive credit history is much better than no credit history.

  20. jtimberman says:

    Very astute to pick up on Dave Ramsey. Yes, I’m a fan.

    Yes, he talks about personal responsibility a lot. Probably at least once every single hour of every show. He mentions it many times in his FPU lessons and his books.

    Yet he still HATES credit cards and the credit card industry. He never once has told anyone that they should handle their credit cards responsibly. He tells people to cut them up and close the accounts.

    The only time he advises someone to borrow money is to get out of a bigger debt mess. Most often, to get a small loan to get out of a car lease or big hairy car payment and pay off the balance with a smaller loan, with enough left over to buy a cheap car.

    I’m so proud of all you people who are so responsible with your credit cards. Are you millionaires? No? I didn’t think so. Dave Ramsey is a multi-millionaire, and he didn’t use credit cards to get there.

    I think I’ll follow his advice, not yours. Thanks though!

  21. kitty says:

    I’ll second mossy’s advice on study harder. If high school classes are easy, take AP classes. AP classes will make college easier, allow to take more advanced classes and maybe graduate earlier. This would save money.

    I also agree with saving money for travelling. I went for a study abroad course during summer after my junior year in college. It was great. I’ve travelled a lot as an adult and it is not the same. I wouldn’t trade the memories of this time for a few more thousands in my retirement savings.

    Besides, if she isn’t interested in travel, wouldn’t college tuition be a higher priority than retirement savings? Unless parents are sufficiently rich not to miss the money (or sufficiently poor so that a child qualifies for large financial aid), it seems a little selfish for a child to put money in Roth IRA while the parents whose retirement is much closer are paying for college. Contributing a little would be nice and would show some appreciation.

    jtimberman, you seem to have almost religious feelings against credit cards with the accompanying desire to covert everyone to the cause. I agree that some people should stay away. But if you look up the statistics, over a third of Americans pay their bills in full every month. This is an awful lot of people. If you enjoy an occasional glass of wine, you probably wouldn’t be very receptive to a member of AA trying to convince you to completely abstain from drinking. For the record – I’ve used credit cards since 1983 and have never once paid a penny in interest.

  22. cv says:

    My parents got me a credit card when I got my driver’s license at 16, and I’ve been using credit cards for 10 years without ever paying interest. My parents wanted me to have a way to deal with emergencies like my car breaking down or even just not having cash with me to pay for gas, and they knew that they could pay it off should an emergency arise.

    Another way credit cards are useful: my girlfriend and I live together and split a lot of household expenses, but we’re not ready to completely combine our finances. We have a joint credit card account, paid off each month, and it’s a lot easier than trying to keep receipts for everything and remember what was supposed to be split and what wasn’t, or who paid the cash for the movie tickets, or whatever.

    jtimberman, I don’t know much about Dave Ramsey, but his anti-credit card stance may be a function of his audience. He writes and speaks to people who are already in debt, mostly, and for people who have gotten themselves into debt, especially credit card debt, additional credit cards can be a truly terrible idea. For people who use them properly, though, they’re a great convenience.

  23. Kevin says:

    Don’t forget that for young people a year is a long time. They have only been alive for 16 years so that is 1/16 of their entire lives.

  24. Lizard says:

    I feel really fortunate that I learned/did most of the things on Trent’s list in high school. Probably mostly because of my parents’ influence. So if you want your kids to handle credit wisely, show them how you handle it wisely (or make very clear the consequences of your poor decisions, if you’re not).
    Here’s two more ideas:
    (1) If you’ve got the hard classes covered, add some practical classes if they’re available (typing, speed-reading, home ec if it’s taught well). It was so painful to watch my friends hunt and peck to type their papers in college! (If the classes aren’t available, learn it on your own.)
    (2) Sometimes it’s worth paying extra quality in the things you use every day.

  25. Mariette says:

    I’m particularly fond of the last item on this list – really work at what you love, do it a lot so that you get REALLY GOOD AT IT. That way you aren’t stuck doing work you hate for most of your life and can earn a living doing something you enjoy – and will in theory be all the happier for it. As many well known people have said about being successful artists of any persuasion: “it’s 10% talent and 90% hard work.”

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