Money tips for teens
Gabe Ruschman is a 16-year-old go-getter. An honor roll student from the Chicago suburb of Skokie, he plays safety on his high school football team, carves out time to play the trumpet and has worked as a seasonal employee at Home Depot over the summer.
The teen is also passionate about cars, and his recent shopping experience spurred interest in learning how to manage his money better — from saving, goal setting, budgeting, investing in stocks and more.
With an encouraging boost from his grandfather, Robert Ruschman, Gabe emailed me a list of questions that covered a wide range of money management issues that he was curious about. The answers included so many interesting nuggets of information that I thought they should be shared with Kids & Money readers, especially teens.
For answers, I turned to several personal finance experts. Their thoughts on Gabe’s questions, edited for clarity.
Q: I have to pay for a car, save for college and have some spending money. Should I set aside percentages? A:
“I recommend that you prioritize your goals in order of importance to you — car, tuition, spending money,” said Susan Beacham, a financial education expert and chief executive of the Money Savvy Generation. Next, she said, allocate your savings to those goals in a priority order, say 50% to a car, 30% to college and 20% to spending money — “whatever is right for your priorities.”
Beacham generally urged teens to “think long and hard” about buying a car. “Do you want it or is it a need,” she asked. And what about all the costs associated with owning a car? Who will pay?
Q: I read where Warren Buffett has about 75% of his billions in four stocks — Apple, American Express, Coca-Cola and Bank of America. Should I follow his lead? A:
“I think individual stocks are risky for the average investor,” said Ted Rossman, an analyst at Bankrate.com. “I think Buffett said it best. He has instructed the trustee in charge of his will to invest 90% of the assets into an S&P 500 stock index fund and the other 10% in short-term government bonds. Buffett has repeatedly advocated for low-cost index funds as the best choice for everyday people.
“Matching the market return (through an index fund) over the long haul is a great way to build wealth, especially if you’re young and invest consistently,” Rossman said. “Buffett is an incredible investor but leave the stock-picking to the pros.”
Q: Should I invest in crypto? A:
Proceed with caution, Rossman said. “This is a highly speculative, highly volatile asset class, especially for a young person who is just getting started and probably doesn’t have many assets. It may be best to watch from the sidelines … read, listen, research and maybe even track a mock crypto portfolio.”
Q: Do I need a broker to make trades or can I do it myself? A:
The do-it-yourself movement hit Wall Street years ago. There are many reputable, low-cost ways to trade without paying commissions or requiring minimum account balances. For example, check Bankrate at https:bankrate.com/investing/best-onlinebrokers-for beginners/.
Q: What’s the difference between a debit and credit card? A:
“A credit card is essentially a loan,” Rossman said. “It’s a line of credit a bank or other financial institution extends to you. You can spend on the card, but then you need to pay the bank back. A debit card, on the other hand, is tied to a checking account. You can only spend what you have in the account. A major advantage of a debit card is that you are not going into debt.”
But credit cards have advantages, such as superior rewards programs and better protection from fraud. Using a credit card responsibly will improve your credit score, too.
“But always make sure to pay (the balance) in full every month and avoid interest,” Rossman said.
As for Gabe’s financial advice to his peers, he put it succinctly: Don’t be afraid to take risks but be smart. Read what the experts have to say, monitor social media and most of all, keep your cool.