You may be wondering why I’m addressing this letter to you and not the boys. It’s because when you grow up, you’ll have to deal with some things that have historically made it harder for women to become as financially secure as men. Things like unequal pay, time out of the workforce and low confidence about investing.
But it can be different for you. If you go in with your eyes open to the challenges and a strategy to overcome them, you’ll kick butt managing money like no woman before you.
Here are some steps you can take to make that happen.
1. Demand equal pay
Say you set up a lemonade stand with your brother and for every cup you sold, you were paid 82 cents and your brother got $1.
Totally unfair, right?
That’s unfortunately what women face in the workplace, where we make 82 cents on average for every dollar men earn.
We’re working on putting an end to the wage gap and hope to make it a moot issue by the time you’re applying for a management position at NASA. In the meantime, let’s beef up your negotiation skills and practice asking to be paid what you’re worth.
Start with a competitive analysis: Find out the market rate for whatever you’re doing in life — be it selling lemonade, doing the chores, working in the corner suite — by asking your peers (boys and girls) about how much they are paid.
Next, present your findings to your parents, employer or whomever you’re negotiating with and build a case for being fairly paid by citing your past performance and any new responsibilities you’ve taken on.
If the answer is “no,” ask what it will take to get them to a “yes.” (If they agree to your terms right away, keep it classy and wait until you get to your room to drop the mic.)
2. Memorize this equation
A = P (1 + r/n)nt. Or here it is in handy calculator form.
That’s the formula for compound interest. Why does it matter? Because it’s magic! And not that abracadabra-type magic, either.
Think of what you could do with $150. What about $2,600?
To visualize compound interest — where the interest you earn is added back into the account — imagine a ball of money rolling down a hill covered with money. Like a snowball, once it gets going it just gets bigger and bigger. Give it enough time to do its thing — let’s say 20 years — and it’ll turn $100 in a bank account earning 2% interest into about $150 … without you having to raise a single finger that entire time.
Think of what you could do with $150! Want to make it $2,600 instead?
For more dramatic results, instead of putting $100 in savings a single time, commit to adding $100 to your account once a year. In just five years you would have $640. In 10 years, it would be $1,200. And in 20 years, you would have a whopping $2,627 — enough to reimburse your parents for those fender benders from your teenage years.
3. Don’t do debt
Compound interest pads your savings. But that same magic formula working in reverse will empty money from your piggy bank faster than you can count it.
This is how credit card debt works: The bank lets you borrow money to pay for purchases and requires you to pay back each month just a small portion of what you spent. Then, it charges interest on the amount you haven’t paid back. We’re talking about interest rates in the double-digits — 15%, 17%, even 20%-plus.
It doesn’t take long for a pizza purchased on credit a few years ago to accrue interest and end up costing you as much as Coachella tickets. The lesson here? Only use a credit card to buy stuff you can afford to pay off right away.
4. Trust your instincts
If I had a dime for every time a teenage girl asked me for advice on investing her first paycheck, I would not have one single dime. Teenage boys, on the other hand, find out that I write about finances for a living and for the next 30 minutes they’re breathlessly telling me about the CEOs they admire and the stocks they want to buy.
If I had a dime for every time a teenage girl asked me for advice about investing… I would not have one single dime.
This is about confidence. Money management firm Merrill Lynch recently surveyed over 2,500 women and found that women are roughly as confident as men in tackling every aspect of finances — except managing investments.
Ready for a dose of irony? When it comes to investing, women are often better at it than men.
Remember those 2% returns on savings that we discussed earlier? If that $100 a month was invested in the stock market earning an annual average of 6%, instead of having $2,600 after 20 years sitting in a bank account you would have $4,200. Which leads us to my last point …
5. Just get started
I asked the daughter of one of the most well-known names on Wall Street how she got started investing, and here’s what she said:
“When I opened my first IRA at age 23, I called my dad and asked him what to invest in,” says Carrie Schwab-Pomerantz, whose dad, Charles Schwab, founded a brokerage business in his name. “I wanted a hot stock pick. But he was insistent that it’s not about hot stocks; it’s about participating in the market.”
He recommended that she buy a diversified mutual fund — such as an index fund, which has the potential to earn that 6% return — which invests in lots of different companies at once. That makes it less volatile than buying a handful of individual stocks, which can dramatically go up and down without notice just like your older sibling’s emotional state.
His other point — and this is really important — is that she get started investing ASAP.
That’s because all of the challenges we’ve discussed, as well as losing income when temporarily leaving the workforce to raise children, mean that in order to build the same size nest egg as a man, the average woman must save $1.25 for every $1 a man invests for retirement.
After that, go out and encourage your girlfriends — and if you’re feeling open-hearted, the boys, too — to do the same.
This article was written by NerdWallet and was originally published by Forbes.