Financial health (and wealth) isn’t on most teenagers’ radar, yet the teen years are the optimal time to get a head start on attaining financial independence and reaping the benefits of the power of compound interest from an early age. Though social media may portray outsized financial success as something only attainable through a massive inheritance or viral internet fame, real wealth depends not only on the hard work required to get a set amount of money in your bank account, but rather the financial responsibility and discipline required to maintain and grow that hard-earned money in the long-term. There are far too many examples of younger people who hit the financial jackpot with a lucky break or 15 minutes of internet fame, but lost it all due to poor spending habits and a nonexistent savings habit. Thus, when asking the critically important question of how much money should a teenager save, it’s important to begin with the end goal in mind.
If you simply dangle the carrot of five decades-removed retirement, that may not be imminent or relatable enough to inspire a teen to strategically save, manage, and grow their own finances. Instead, it’s important to educate teens about what money is for, which bigger purchases are good investments versus bad, and how smart financial management and budgeting can enable teens to achieve a specific goal, like buying a house or funding a business at an age much younger than their peers would be able. One of the most important things to mention is that even if a teen is just working a summer job making minimum wage, this is the perfect time to get a good start on smart financial management, since saving and investing the majority of their gross income will be much more difficult when they’re an adult in a higher tax bracket and with many more financial responsibilities and bills to pay, from rent to health insurance to increasingly expensive grocery bills.
How Much to Start Saving – What Is the Goal?
It can be confusing for high school students trying to determine how much money to save, but a lot of financial experts suggest saving at least $2,000 a year until you turn 20 is a good place to start. The best way to do this is to determine what your salary is and what percentage of it you’ll have to save to reach this goal. If you start saving $2,000 – or close to this – beginning at age 15, you can easily have $10,000 saved up by your twentieth birthday. Let’s look at an example that might make it easier for you to understand.
Let’s say you’re making $8 an hour but only working 10 hours a week because it’s a part-time job. That’s $80 per week, which goes down to around $70 per week after taxes. If you work 50 weeks out of the year (you’ll likely not be able to work every single week), that’s roughly $3,500 per year. If you’d like to save $2,000 a year, you’ll have to put approximately 60% of the money in your savings account each week, which is roughly $40-42 per week.
These are conservative numbers because a lot of teens make more than $8 per hour and work more than 10 hours per week, but it’s enough of an example to show you how easy it is to save this amount. It may seem unfair to save more than half of the money you make, but as you get older you’ll make a higher hourly wage and likely work more hours every week, which can make saving even easier. These estimates present an easy way to save money regularly, even if you don’t reach your $2,000 goal.
In fact, many money experts recommend amounts that are higher depending on your age, and the chart of how much you should save looks like this:
- 13 years old: 80%
- 14 years old: 70%
- 15 years old: 70%
- 16 years old: 50%
- 17 years old: 50%
- 18 years old: 30%
- 19 years old: 20%
These are naturally estimates only because let’s face it, your particular scenario may be different. You may actually have bills to pay, particularly if you have credit card debt, a new car note, car insurance, or even a big purchase you’re saving up for. You can’t deprive yourself of all the things you love forever, but the more spending money you save early on, the easier those bigger purchases will be in a few years’ time. Simply put, even if you can’t save as much money as you’d like, you should aim to put at least some amount of your income away into savings or investments every week or month to ensure you’re always making some financial progress for the long-term.
Why Should You Save Money?
It isn’t just big-ticket items you’ll want to save money for; it’s also emergencies, college, summer break, or even an entrepreneurial venture or passion project you may stumble upon in the years to come. Indeed, here are some of the reasons why teens specifically try to save money:
- College. Any college student can tell you how expensive college is, from tuition to food, room and board, and social activities. Though you likely won’t be able to save enough money to pay for all your schooling fees without a scholarship, it should help with extra expenses or even as a down payment for your own car, which you may need to get from the university campus to your off-campus job.
- Emergencies. Many experts suggest having an emergency fund, or enough extra money to live on for three to six months in case something happens and you can’t work. As far as financial goals go, this is a tough one, but even one or two months is enough for many people.
- Retirement. OK, retirement is one of those long-term savings goals that not all teens are interested in, but like college expenses, it can help a little when this is one of your goals. A good investment account works better when saving for retirement, but we’ll get to that in a minute.
- Large purchases. If you’re trying to save for your first car or for unexpected expenses, you can put a little aside every week and when you have to fork out the money later on, it won’t be nearly as painful for you.
And if you’re curious about how and where to save your money, you have tons of options available to you. You can start an old-fashioned checking account or keep everything you earn on a debit card. You can even have a separate card to keep your emergency fund on if you like. If you start saving as soon as you get your very first job, you’ll be surprised by how easy it is to save a lot of money in a short period of time, giving you the financial freedom we all desire.
You Should Always Have a Budget
Budgets are hard to devise and to stick to, but you have to start somewhere. If you’d like a starting point for how much to save and where your money should be going, here is a suggested budget:
- Investments and emergency expenses: 20%
- College expenses (or alternate education): 20%
- Buying a car / vehicle or transportation expenses: 20%
- Misc. big purchases (computer, gaming system, video games, etc.): 20%
- Entertainment and fun: 10%
- Tithing or charitable giving: 10%
Keep in mind that you’ll be saving your money for several reasons, including learning the value of money, paying down credit card debt if you have some, and learning how to move up to a full-time job one day, which might require obtaining university degrees. Good financial habits can help you do all of this and more, but you have to learn to have some discipline when it comes to your finances, and you need to start learning and saving as early on as possible.
After you’ve saved and added to your savings account for a while, you should start considering some ways to invest your money so you make even more money in the end. Once you start working full-time, you can consider starting a regular or Roth IRA or even tools such as CDs (Certificate of deposit, which provide a guaranteed return after a certain amount of time) or treasury bills. Regardless of what your financial situation is, regular saving and investing is the best way to reach any of your long-term goals.
Other Tips to Help You Save
As you’ve likely already figured out, saving even $10-50 per week can add up rather quickly, and if you can get financial advice from investment counselors or even the adults in your life, this can be the first step to building up the money you have in the bank rather quickly. Good money habits can be developed easily when you surround yourself with the right people, which may include young adults who’ve already demonstrated and attained impressive financial goals, rather than those who practice and encourage frivolous spending and may fail to align with your long-term priorities.
If you wish to start saving, it’s a good idea to make a list of all of your income and your monthly expenses, including everything from school lunches to gas in your car. Put it down in writing or on a spreadsheet so you can see exactly how much you’re bringing home each week and where the money goes. Good habits aside, you still have to have exact numbers before determining what you’ll be able to save each month. Having the numbers in writing is also a good way to hold yourself accountable week after week, month after month.
If you’re working part-time and feel you’re not making or saving enough money, the next steps could include trying to get your hours increased, trying to get a raise, or trying to find odd jobs, a side hustle, or to acquire a new monetizable skill to further increase your earning power and revenue streams. The teenager years are hard when you’re just starting to make your own money, but saving even small amounts of money can make a big difference after just a few months or a year. The earlier you start earning, saving, and investing, the more time and opportunity your money has to grow and make more (again, through the power of compound interest and long-term investing), so the patience you’ll need to exert now will pay you back tenfold (or more) in the future.
So, how much money should a teenager save in a year’s time? While $2,000 should be your minimum annual goal, you should really take that number as inspiration to earn, save, and invest even more by dipping your toe into various revenue-generating opportunities that tap into your talents, strengths, interests, and future career goals. You may take on some jobs as a means to an end or a pure money-making gig, but you may also stumble upon opportunities that spark a future career at a young age, and if you’re smart with your money and avoid depleting those earnings on fleeting purchases and liabilities, you may come out with a nest egg big enough to mitigate student loans and other debt that tie most young people down. Most importantly, taking charge of your financial future and demonstrating financial discipline and investing savvy will give you a sense of freedom and autonomy to build a bright financial future with wisdom far beyond your years. Money management skills can make or break many young (and old) people, so you’re already on the right side of the line by asking the question that brought you here.