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.