Even if you’re young, you already know that you want things you can’t afford to buy. You can’t always rely on your parents or relatives to get you the things you want. They have other things to worry about! Saving money is the key to getting what you want, whether you’re dreaming of a new computer or game console or you want to save money for something longer term, like a car or your education.
An old school piggy bank is a good start. As you get older you’ll realize that it won’t get you very far. There are better ways to save money! Learning how to save will get you the things you want to buy. It’s also a great head start on a skill you’ll use all your life!
It’s hard to save money if you don’t have money. You’ll probably have some coming in from gifts from relatives or parents, but that may not be enough. There are lots of ways for kids to earn money. We’ve got a great guide to moneymaking for kids to help you get started.
👫 Talk to your parents before you start saving money. You’ll need your parents’ permission to use most of these methods. And even if you didn’t, it’s a good idea to discuss them with your parents anyway. Your parents and older relatives will probably be delighted that you’re planning to start saving. They’ll probably be happy to help you in any way they can!
Open a savings account
Many banks allow parents to open a savings account for their child at any age. A parent is also listed as owning the account, though that can be removed at age 18. Some banks waive the monthly maintenance fee for these accounts. A parent will have to go with you to open an account.
An internet-only bank can be enticing, but your parents may feel better if you open a savings account at a bank with a physical branch nearby. This will make it a lot easier to deposit cash (a lot of your income will likely be in cash) and you can walk in by yourself to make deposits or withdrawals.
Savings accounts earn some interest, but not much. Your money will be safe in the bank and you’ll be less tempted to spend it, but you won’t earn a lot.
🤔 As of Nov. 9, 2020, the national rate paid on a savings account in the U.S. is 0.05%, according to the FDIC. At that rate, a $1,000 deposit would earn 50 cents in interest in a year.
Try to find a savings account with these features:
- No monthly maintenance fee.
- No minimum balance.
- Pays interest.
- Insured by the FDIC, meaning your deposits are insured if the bank goes out of business.
If you make regular deposits to your savings account you’ll soon see your balance growing and getting you closer to your goals!
Open a checking account
A savings account may not be best for you. If you have regular income and expenses, you might want easier access to your money. .
You can withdraw money any time you want from a savings account, but a checking account makes it easier to pay people. You can pay people with checks or through the bank’s app. Most checking accounts also have debit cards that will let you access money through ATMs or make purchases directly with your card.
Again, you should talk to your parents about opening a checking account. One of them will need to be the joint owner of the account.
😟 They may be worried that a checking account will only encourage you to spend money. 💡 Remind them that you’re earning money and you know how much work it takes to earn it.
Having a bank account will help you focus on how money leaves your account. Being entrusted with your own money will help you learn independence.
Have Checking and Savings Accounts
One of the best ways to start saving money without realizing you’re doing it is to set up automatic deposit of your paycheck (if you have one) to a checking account, and regularly transfer money to a savings account.
If you have both types of accounts, you can have your pay deposited directly from your employer into the checking account. The money will never touch your hands.
Then you can set up an automatic transfer each month of a set percentage of your income to your savings account.
😉 If you’re lucky and your parents want to encourage you to save, they may match your monthly savings. They can transfer money from their account to yours, which doubles your savings each month.
Putting aside a percentage of your income can be difficult when you’re an adult and have bills to pay. But for now with almost no expenses to your name, it’s a great time to set a savings goal as soon as you start earning.
Consider a CD
If a parent or relative has given you a sum of money to start your savings, or if you have built up a decent balance in your savings account and you want to earn some interest, consider a Certificate of Deposit or CD. Saving with a CD is a great way to put money aside for an expense that you have planned for a specific time in your future.
A CD commits your money for an agreed amount of time. CDs are available in different time frames, and the longer the commitment, the higher the interest rate will usually be. Ask your bank about what interest rates they offer on a CD.
⚠️ If you take your money out early, you’ll lose the interest, which is a good incentive to keep the money in savings.
Open a Custodial IRA
If you really want to save for the ultimate long-term goal, consider opening an individual retirement account, or IRA. Your future self will thank you.
A Custodial IRA is a regular IRA, but with a parent acting as a custodian for a minor with earned income. Once you’re 18, then you can decide how to invest the assets on your own. Some states require you to reach 21 to get full control of the account. Even with a custodian, all of the money in the account belongs to the child. It’s a good way to learn about compounded growth.
Suppose a kind grandparent helped you start your IRA by giving you $6,000, which is the per year IRA contribution limit in 2020. Even if no more contributions were ever made to the IRA, at a 6% investment return and monthly compounding it would grow to $217,628 in 60 years. Use our online compound interest calculator and do the math yourself.
You can withdraw contributions to a Roth IRA at any time and spend them on anything. A kid could take the money they contributed out and spend it on a car, college expenses or a new computer. The IRA’s earnings, however, may be taxed as income and can’t be withdrawn without a 10% early distribution penalty.
There are many ways to save, and most of them are good. This information should help you start. If you want to learn a bit more about saving money you can check out the US Governments savings tips for young people. What’s important is that you start saving. The earlier you start the more you’ll have! Even more important, you’ll get in the habit of saving, and that habit is one of the most important lessons you can learn. If you learn to save when you’re young you’ll be a big step ahead of many other people when you finish school and start working!