Teaching Teens to Save
Saving equals security and opportunity for your future self.
Living well below your means now in order to afford to live well in your future is easier to maintain if it is the only lifestyle choice you have ever experienced. Consider nudging teens to begin this habit of saving early in their lives using these three strategies:
Strategy #1: Nobody likes a lecture; teach teens through experiences.
I’ve taught personal finance for over a decade. My experience, research, and the responses my students provide on my student surveys coalesce into one clear truism: students love experiential learning. Field trips and simulations such as Budget Challenge, currently being offered free of charge, are examples of hands on learning at its best. Budget Challenge is a 9-week interactive simulation where students assume the role of recent college graduates with a job, a regular paycheck, a checking account, and, most importantly, a 401(k). Students use their income and assets to pay bills, manage expenses, save money, invest for retirement, pay taxes, and more. Students compete against one another and are primarily awarded points by avoiding banking fees and saving money.
Strategy #2: Take advantage of free money and tax deductions with retirement products.
An employer matching contribution to your retirement account is like free money. If you do not contribute, you'll forfeit the employer match. An employer match generates far higher returns and faster compounding of retirement savings. Before you begin investing, start with the end in mind and use the Ballpark E$timate tool to understand how much retirement savings you need. There are various types of investment products with broad ranging tax benefits, most of which allow for investment earnings to grow without being taxed. To know the type of tax sheltered retirement product in your best interest, consider turning to financial experts bound to the fiduciary standard, obligating them to put their clients’ best interest first. And start young and establish a diversified portfolio to take full advantage of compounding returns.
Strategy #3: Make savings and investing automatic.
Decisions on what to eat need to be made at each meal and leave many opportunities for good and bad choices. However, there are some decisions in personal finance that are compound decisions, repeating over and over again, like investing for retirement or saving for goals and emergencies. An evidence-based strategy is to split paycheck deposits into checking, a retirement-specific, and a savings-specific account. Use a checking account as the only funds available for day-to-day spending, so saving and investing into separate accounts isn’t an afterthought.