Corbin Atack sees some classmates putting little thought into managing money.
“A lot of them like to go out and buy lunch, because it’s a new thing you get to do in high school,” the Seattle ninth-grader says. They also spend on goodies like video games and basketball shoes.
But Atack and some other teens have started setting money aside for pricier purchases and even as an investment for the future.
Financial habits — good or bad — are established early. Financial experts and educators recommend five ways teens can start building good ones.
1. Practice first, then budget
Teens don’t get to take off alone with the car after a written test, says Brian Page, who teaches personal finance at Reading High School, in Reading, Ohio. “They need experience first. Managing money shouldn’t be any different.”
He suggests teens practice using such programs as the H&R Block Budget Challenge.
Next, look into smartphone apps that help manage money, advises Rebecca Wiggins, executive director of the Association for Financial Counseling and Planning Education. “This encourages mindful spending and provides a feeling of accomplishment as goals are met.”
» MORE: Teaching kids about money
2. Make some money
“Do something to earn a little money,” suggests Laura Levine, president and chief executive of the JumpStart Coalition for Personal Financial Literacy. “It is a great place to start building that work ethic and that focus on money as something earned, not something you’re entitled to.”
Atack does yard work around the neighborhood to earn cash. Olivia Sterne, a Seattle 11th-grader, has babysat and acted for money, and she just applied at a diner for her first regular job.
“I think it’s good to learn how to do that stuff now,” she says, “when it’s not of catastrophic importance.”
Unlike school, work comes with a boss who will fire employees who don’t meet expectations, Page says. But he advises teens to limit jobs to 15 hours a week or less: “It should never impact their academics.”
3. Open checking and savings accounts
Sterne’s and Atack’s parents opened bank accounts for them. Now, Sterne is about to get her first debit card.
“As I’ve gotten older, I’ve been more responsible for paying for my own stuff,” she explains.
Page advises teens to find a federally insured bank or credit union with low or no fees, open both checking and savings accounts, and set up direct deposit of paychecks, automatically dividing money between the accounts. This helps ensure that some pay is set aside.
“It’s important to begin the habit of saving,” Page says. “It’s something as simple as saving for a prom dress, or it could be saving for a car.” This way, he adds, kids “experience the rewarding feeling that comes from saving for and reaching a financial goal.”
Atack recently saved up for a new snowboard. That involved sacrifice, like when friends went out for a soda.
“You totally want to go with them, but you can’t,” he says.
Teens who want a car should check out a cost estimator to better understand what they’re getting into, Page suggests. “It’s a really expensive decision.”
Teens also should think really long-term and put some money into a retirement account, Wiggins says. “This not only starts an important conversation of long-term savings and retirement, but it is an opportunity to teach them the value of compound interest.”
Atack started investing in index funds a couple of years ago, after reading about them in a book his dad recommended. Such funds track market gauges like the Standard & Poor’s 500 Index of shares.
4. Start building credit, and know the terms
After turning 18, teens should get a savings-backed credit card with a low spending limit, strictly to build credit, Page advises. “Borrow no more than 10% of the limit and pay it back on time and in full every time.”
Teens and others should request free credit reports from all three major credit bureaus through AnnualCreditReport.com on their 18th birthday and continue that practice yearly, Page says.
Younger teens don’t need to rush to build credit but should learn the differences among credit, prepaid and debit cards and understand the terms of each financial instrument, Levine says.
5. Research decisions about the future
Teens nearing the end of high school should complete the Free Application for Federal Student Aid, or FAFSA, to understand their college financial aid picture, compare schools and prioritize subsidized loans, Page says. They shouldn’t borrow more than what they’re likely to earn in the first year of work after graduation, he notes. Check the Bureau of Labor Statistics’ Occupational Outlook Handbook to see what different careers pay.
Finally, teens shouldn’t worry too much about making mistakes now. The point is to learn while the stakes are low. That will help them avoid much costlier adult missteps.