BY JULIA ANDERSON
A 13-year-old girl asked me the other day what advice I could give her about money…. saving it, investing it, and building a nest egg.
She’s keen and already has cash in the bank saved from raising 4-H animals during the summer, selling them in the fall and depositing her net earnings.
I told her I’d need to think about her question before answering because most of my reporting and writing targets women 18 and older. Secondly, a 13-year-old faces shorter-term challenges related to getting an education beyond high school and paying for it. (More on that below)
Instead of pulling answers out of my head or off the Internet, I turned to my Facebook friends. Wow, did they come through!
The cool thing about those who took time to comment is their diversity in age and background. Among tipsters were younger people with children and full-time jobs, a middle-aged winery owner, a retired high-tech executive, an investment professional, a banker and a Realtor, plus a few folks managing their investments in retirement. Thanks to all.
What follows are great tips for the 13-year-old. Thanks, everybody!
A teacher in her 40s: Create a budget for something small you want to purchase in the next three months, something bigger you want in a year, and something even bigger you would like to have in five years. Figure out how much you need for the items you want, list all your sources of income, and create a plan for how you will save those funds. Practice planning lots, make goals, keep a journal with a simple list of what you buy every day.
Working woman in her 60s: It’s not what you make it’s what you don’t spend‼️ My mom was a financial whiz in her day.
Real estate professional: Learn about “dollar cost averaging." Regardless of the market, make a small monthly contribution into a mutual fund. I use Vanguard.
Investment adviser: Create a habit of saving. Invest in equities over bonds or cash. Maintain your saving and investing discipline.
Retired female high-tech executive: Learn about compounding interest. "How Teens Can become Millionaires," Click here.
60-ish woman working in retail: At 13 when parents are paying for nearly everything, I would advise her to save every dollar she receives. Let’s say her allowance is $10 per week. That’s $520 per year. Let’s say, on her birthday she gets $100 from Grandma and $50 from Aunt Sarah. Now she has $670 per year. Let’s say she earns around $25 per month for babysitting. That’s another $300 for a total annual income of $970. At 16, she gets a minimum-wage, part-time job and earns around $8,000 per year. That’s $16,000 in two years to add to her savings.
She could open and deposit this cash into a savings account at a brick-and-mortar bank and keep $5 in that account. Then, she could open an online savings account and link it to her brick-and-mortar account. Online accounts typically pay higher APYs (annual percentage yield). E-Trade has one paying 1.75 percent with no minimum deposit. With a minimum of $10,000 at Marcus by Goldman Sachs, they would give her a $100 bonus for opening a new account.
(For 10 best high-yield savings accounts, click here.)
A 70ish professional writer: When I got my first job at 16 (department store clerk) my parents insisted that I save 50 per cent of every paycheck. I thought they were the meanest people in the world. Turns out that they were quite wise!
Teacher in her 40s: Create a budget for something small you want to purchase in the next three months, something bigger you want in a year, and something even bigger you would like to have in five years. Figure out how much you need for the items you want, list all your sources of income, and create a plan for how you will save those funds. Practice planning lots, make goals, keep a journal with a simple list of what you buy every day.
(For best personal finance software apps for 2020, click here.)
Freelance writer: When I got my first job at 16 (department store clerk) my parents insisted that I save 50 per cent of every paycheck. I thought they were the meanest people in the world. Turns out that they were quite wise!
Retired nurse: Always live within your means. Save for a rainy day. When you want to buy something, wait 24 hours before you go back to buy it.
Working 30ish mom: Don't buy on impulse - make a rule for yourself, like waiting a day before buying anything over $20 (or whatever feels right to a 13-year-old girl). Learn how debt works (specifically, credit cards and loans) and when and how to use debt wisely.
Save toward multiple goals. This mimics aspects of a budget for someone who isn't used to one. Learn what things cost on a monthly basis (as a precursor to budgeting and $$$$ independence). Practice micro-investing with something like Acorns (an online site that “helps people invest, save and spend smarter starting at just $1 per month”).
Retired retail store owner: Practice the rule of 78 and once the concept is understood... create a classic example of what it can do for her (or work against her when borrowing).
Help her pick a low-dollar entry mutual fund that she can watch rise and yes, fall in value (with markets) because that's important to learn. A gift for the minimum entry would be a nice 13th birthday present.
Winery co-owner: Save and invest 10 cents out of each dollar earned (that's 10 percent of your income). Do it always, start young. My uncle gave me this advice, which I did not follow (cringe), and the other day I added it up out of curiosity and was SHOCKED at what it would be today. The 10 percent is hardly missed at the time, but that constant trickle can make a BIG difference over time. Pay cash or wait until you can, avoid debt especially on depreciating assets or non-assets. (for more, click here.)
Pass the marshmallow test. When faced with the choice of one marshmallow now or two later, choose what's better long-term than short-term. Two marshmallows are twice as good as one -- patience pays off! Don't be afraid of money, learn about how it works and put that knowledge to use in your favor.
Forget keeping up with the Jones’s, it’s probably a house of cards anyway. Don't be too frugal either, budget in some "fun money" (maybe also 10 percent?) so you don't feel deprived.
However little or much you have, be thankful and manage it wisely. Also budget in generosity, give back 10 percent to a cause of your choice to help others. (Choose any three, lol.)
Retired grandma: She should always save half of her earnings, no matter how small or great. That is what I taught my children and they are now teaching that to their children.
A full-time female executive: Keep a tight budget as cash is king. Invest with every paycheck. Real estate and education are great investments.
Using a 529 plan (or not):
If you google 529 tax-advantaged investment plans designed to encourage savings for higher education expenses, you find a range of pros and cons about them. A 13-year-old girl and her family (including grandparents) must decide what works financially for them. Start the conversation, now!!
With only 4 or 5 years until high school graduation, she needs a money strategy that includes estimated costs and an outline of where the money will come from to pay those costs. A 529 can be part of that plan.
529 Pros: Investments inside a 529 grow tax-deferred and are tax-free when withdrawn.
529 Cons: These plans offer limited investment options, may have higher management fees and may reduce need-based aid offered by schools up to a maximum of 5.64 percent of asset value. However, the experts say the trade-offs are worth it.
That’s because you get tax-free growth inside a 529 account and are putting money away that won’t turn into crippling student loan debt, later. Winning a free ride to college is rare.
Applying for scholarship and aid money is a big job. Start learning about it now. Believe it or not, I know young people who have won a four-year degree without taking on student debt!!
Helpful web sites on 529s:
cappex.com – free information about colleges, scholarships, majors and student aid.
Michelle Singletary, Washington Post financial columnist, click here.
Pros and cons of 529 plans, click here.
"Why no one should have a 529 plan," click here.
For more general money advice:
How teens can become millionaires, click here.
MarketWatch; Talking to kids about money, click here.
10 Money Lessons for kids, click here. Parents.com
I meet women all the time who face job and money transitions and who want to do them right. It’s about building confidence and taking charge of the future. This is your money. No one cares more than you do!
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