Student’s guide to savings that just makes cents

According+to+research+from+Next+Gen+Personal+Finance%2C+about+a+fifth+of+teenagers+ages+13-17+%2819+percent%29+hold+a+credit+card+as+an+authorized+user+on+a+parent%E2%80%99s+or+guardian%E2%80%99s+account.++

Maddox Fornataro

According to research from Next Gen Personal Finance, “about a fifth of teenagers ages 13-17 (19 percent) hold a credit card as an authorized user on a parent’s or guardian’s account.”

Theodora Hirmina, Staff Writer

A simple financial decision can save high school students from thousands in debt. Whether it be credit cards or stocks, resources are all over the internet, you just have to know where to start.

Many high school students are unaware of how to set themselves up financially after high school. Students may get a job towards the end of high school, or at the beginning of college, and just let the money build up in a checking account or in cash. What if there was a way to make sure that the money grows on its own?

“I don’t know much about stocks,” said sophomore Ijeoma Nwanko. “I just know that they’re a way of investing money, and wish somebody would teach me about them.”

Most students want to learn and benefit, they just don’t know where to start. Lots of students have jobs, but limit themselves to just a checking account so that they can receive their paychecks. 

“I want a job to make money in college,” said sophomore Madison Turner. “I just haven’t been taught how to properly invest or save up my money.”

 

Checking account vs. Savings account

The first and most beneficial way to organize one’s money is taking a trip to the bank. There are two basic accounts that one can open. A checking account and a savings account. A checking account is one with no interest rate. It is directly connected to a debit card that you can carry around. Some people think of it as the cash in your wallet, just in a card. You can only spend what you have. You can constantly make deposits or withdrawals, but cannot exceed the amount on the card. A checking account is the account that you give a job for them to directly deposit your paycheck. All in all, a checking account is a great way to just organize and keep close track of your money. 

A savings account is what the name defines it to be: an account that stores your money to save it up. There are multiple types of savings accounts, all of which have an interest rate so that your money is slowly growing as it stays in the account. The greater sum of money, the more money made through interest. That’s why it’s encouraged to let the money sit and not withdraw it unless necessary. There are different types of savings accounts, these types of accounts include traditional savings accounts, high-yield savings accounts, money market accounts, certificate of deposit accounts, and specialty savings accounts. 

Traditional savings accounts are very easy to open and easily accessible with little fees on withdrawals, but they have very low-interest rates and monthly fees. High-yield savings accounts have interest rates much higher than that of traditional accounts, but they are harder to access since the higher rates are usually on online banks. Money Market accounts are much easier to access (i.e. ATMs) and have higher interest rates than traditional accounts, but they may have a monthly fee and require larger sums of money. A certificate of deposit account is a timed deposit where you have to leave the money for the agreed-upon time; these accounts will penalize you for withdrawing the money away from the allotted time. Cash management accounts aren’t necessarily savings accounts, they are accounts where you can store money that you plan on using for future investments and retirement while still earning interest on the money. Lastly, specialty savings accounts are made for saving for a specific topic (i.e. house payment, student loans). 

“The first thing that a student can do is open a bank account: checking and savings,” says personal finance teacher Mr. Blaszczyk. “Then if their parents are willing to do so, sign up under their parents’ credit card so that when their parents pay their credit card it builds the students credit so that when they graduate they have a good credit score.” 

 

Credit Cards

Credit cards are linked to credit scores. Opening a credit card with a bank is much different from a debit card. A debit card has money that you already have and have deposited into your checking account. A credit card is an account where the bank loans you money. Let’s say your limit is five thousand dollars. That money is money that the bank will give you. You can spend up to five-thousand dollars, but you can spend less of course. At the end of the month, you are expected to pay back the full amount of money you spent. So if your limit is five-thousand dollars, and you spend two thousand dollars in the month of January. You are expected to pay the bank two-thousand dollars on January 30th. No more, no less. If the money is not paid, you will go into debt and your credit score will go down. 

A credit score is a number that defines your responsibility with money. A high score means that you are reliable with money. That means that you are more likely to get approved for loans and payments and become more eligible for the lowest rates available. If you’ve never been on a credit card before then you won’t start off with a high credit score since you haven’t proven your reliability. You also will start with a lower monthly limit. 

One way to start off your credit score on a higher number is to have your parents put your name on their credit card while you are a minor. You are not one of the sole owners of the card, but you can be put down as a contributing member. That way when you open your own credit card, you can have one of those parents be the cosigner – a last resort to pay off your loan if you are unable to pay it yourself – and you will start off with a higher credit score since you’ve somewhat shown some reliability with money and come from a reliable source. 

 

Stocks & Bonds 

Stocks are shares of ownership in a corporation. When an individual purchases a stock, they are purchasing a part of the business itself. That way, if the corporation succeeds, the worth of the stock increases as well. If the corporation is doing badly, the worth of the stock will decrease as well. Stocks are deemed risky due to the faith that you have to have in the company’s success. Another option that is safer when it comes to investing in stocks is index funds like the S&P 500 index. In an index fund, a folder is made of a number of stocks (i.e. 500 in S&P 500 index) and there are different percentages of the money you invest going to each stock. For example, an index can have 2% in Apple, 2% in Tesla, and 1% in Viacom. That way if Tesla is decreasing in worth, but Apple is increasing in worth, then it will balance out and the money you invested won’t dramatically change. 

On the other hand, you have bonds. Bonds are loans. You as an individual are loaning, a specific company of your choice, money. The company is required to pay you back the loan with the interest presented, so the money grows very slowly. The risk with bonds is bankruptcy. If the company goes bankrupt, you will lose your money. That is why it’s important to do your research before investing in anything at all. 

 

Roth IRA

A Roth IRA is a tax-first retirement account. Taxation works in percentages. The amount of money taken off of one hundred dollars is only seven dollars, but the money taken off of one thousand dollars is seventy dollars. A Roth Ira grows your money with an interest rate and allows you to tax the deposit and not the withdrawal. So if you deposit one-hundred dollars, you will automatically get taxed. Afterward, you let the money sit and grow in the account; you will pay a specific fee if the money is drawn outside of the account’s parameters. Let’s say the money has grown to ten thousand dollars; when you go to withdraw the ten thousand dollars, that money won’t be taxed since the smaller deposit was taxed. 

So what should you do with this information? The first thing you should do is reach out to your parent/guardian and discuss your options. Your parent/guardian can register you under their credit card and open a checking account for you so that you can get used to cooperating with cards and accounts. Then you can open a savings account and slowly start to save up your money. If you have a job, open a Roth IRA. Lastly, you should start researching stock trends and ease into investing.