A Teen’s Guide to Financial Wellness

Imagine yourself 10 years from now. What car do you drive? What do you do for work? Where do you live? The truth is most of your life goals will require money. Whether it’s through a car loan, an advanced education, or a mortgage, money allows us the freedom to acquire the future we imagine for ourselves.

While money is a determining factor in so many areas of life, a typical classroom education doesn’t teach us all the skills we need to know to manage it. It takes time to learn financial literacy and to develop strong financial habits. By making wise financial decisions today, it can help you build a successful life for yourself achieve your goals in the future.

Step 1: Open a Bank Account

Once you get your first job, you’ll need a place to deposit your paychecks so that you can spend or save your money. There are two basic types of deposit banking accounts you should know about:

Checking Accounts

A checking account is one that you regularly withdraw and deposit your money to. It is used for everyday spending like bills, shopping, food, etc. Typically, a checking account comes with a debit card that you can use to purchase goods or services online or in-person.

Savings Accounts

A savings account stores money for later and earns interest (your money growing on its own). Savings accounts are not for daily spending – they are for holding money for a rainy day. If you have financial goals you’d like to meet, like buying your first car, a savings account is the most ideal location to store your money until you are ready.

Be aware, some savings accounts have a monthly transfer limit that you cannot exceed, meaning you can’t take money out of it more than a certain number of times. For example, you may be limited to six total transfers or withdrawals per month.

How to Deposit Money into an Account

You can deposit money into a checking or savings account via direct deposit (depositing your paycheck into your account electronically rather than with a paper check), in person at the bank, at the ATM, or through other electronic transfers. For example, some people set up automatic transfers at their bank to move money from their checking account into their savings account every month.

Benefits of a Checking and Savings Account

• When you store your money in a bank, your money is safe through federal deposit insurance (FDIC), up to $250,000 per depositor, per bank, in each account ownership category. Most banks are FDIC-insured. Just look for the Member FDIC logo when opening your account.

• Savings Accounts can earn interest, which is your money making more money for you!
• Most checking and savings accounts come with online and mobile banking, which let you see your accounts, transfer money, pay bills, and deposit checks from your computer or phone.

Opening an Account is Simple

1. Complete an application online or at a bank
2. Verify your identity
3. Make your first deposit to fund the account
4. Activate features like online and mobile banking
5. Sign disclosure documents

Step 2: Managing Your Accounts

Once you’ve opened your bank accounts, there are a few things you should do:

• Read the rules of your accounts. If you have any questions, reach out to your bank to clarify.
• Keep track of your deposits and withdrawals. Check your account balances regularly through online banking and online statements.
• Set up email or text alerts. This will help you avoid overdraft fees and identify fraud.
• Stay safe online. Never share your account information with someone requesting it over the phone, email, or text.
• Be wary of fraudsters. If anything looks off, it could be fraud, which should be reported to your bank immediately.

How to Monitor Deposits and Withdrawals

It is important to stay on top of your deposits and withdrawals. To monitor these, you can use:

• Your bank’s mobile app
• Your bank’s online banking system
• Finance tracking apps
• Emails or text alerts
• Online statements

Understanding Overdrafts

An overdraft is when a transaction goes through but there’s not enough money in the account to cover it (spending more money than you have in your checking account). Some financial institutions charge an overdraft fee if the account is overdrawn, and if multiple transactions are processed, you can receive a fee for each transaction.

This can add up, so it’s important to monitor your account balances to avoid overdrafts. Online and mobile banking make this easy, so you can see how much money you have, wherever you are.

Step 3: Using Banking Tools

Debit Cards

A debit card is a payment card that withdraws money from your checking account when you make a purchase. You can use a debit card to pay for items in stores, online, and to withdraw cash from ATMs.

A debit card is different than a credit card. A debit card takes money directly out of your checking account and pays with the money you already have.

Credit Cards

A credit card is a way to borrow money to make purchases, with the expectation that the money will be paid back, plus interest.

Unlike debit cards, credit cards do not automatically withdraw from your checking account. You will receive a monthly bill for your credit card balance (all the purchases you made with the card).

Mobile Wallets

Connect your checking account or debit card to your cell phone’s mobile wallet. This lets you make purchases without needing your physical debit card. Mobile wallets are actually more secure from fraud than physical debit cards because they offer multiple layers of protection.

Direct Deposit

When you have a job, you can enroll in direct deposit with your employer. This makes getting paid very fast, safe, and efficient.  It allows your employer to directly deposit your paycheck into your checking or savings account on payday so that you do not have to go to the bank.

To enroll in direct deposit, your employer will provide you with a form, or you can get one from your bank. Fill this out and deliver it to the payroll department at work.

Pro tip: Make savings automatic with direct deposit. Set up a portion of your paycheck to be directly deposited into your savings account so you can save without thinking twice. Start with 10% of your paycheck and see where that takes you!

Checks

When you write a check, it tells your financial institution to pay money from your checking account to someone else, the payee. Checks do not typically come with your account, so you have to ask your bank to order them for you.

Step 4: Budgeting

A budget is a financial plan you create to decide how you’ll spend or save your money each month. It can provide clarity about how much money you make (income), how much money you spend on expenses, and how much money you save.

50/30/20 Budget Method

This is a popular budgeting method where you divide your money into three categories:

This is a great starting point when creating your first budget.

Gather and Analyze Your Financial Data

To make a budget, you need to gather some of your financial data. Write down:

• Your monthly income (how much money you bring in)
• Your monthly expenses (how much money goes out)
  • Needs: Things you must have to live. (Ex. Housing, groceries, transportation, etc.)
  • Wants: Things you desire, but you can live without (Ex. Entertainment, shopping, travel, experiences, etc.)
  • Debts you owe

After you list your monthly income and expenses, take a look at the numbers and the categories. Does your list of monthly income and expenses fit the 50/30/20 categories? Are there areas that you could improve on?

Analyze your budget every month, determine your spending and saving allocations, and adjust your financial habits to best meet your budget.

Managing Your Money

Setting a budget and maintaining your expenses can help you avoid:

• Spending more money than you have
• Late fees on bills
• Overdraft fees
• Interest on unpaid credit card balances
• Negative credit report entries
• Loss of financial services

When you stick to your budgeting goals, you will see it pay off in big ways when you reach your financial goals and get closer to where you see your future self.

Step 5: Setting Goals

Setting SMART goals helps you achieve your dreams for the future by providing a realistic plan to follow. Buying a car or paying for higher education may seem like a lofty goal at first, but when you break it down into smaller goals, you can see it is attainable. SMART goals should be:

• Specific
• Measurable
• Action-oriented
• Reachable
• Time-bound

Take this example and fill out a table like this for your own goals:

As you’re thinking about your goals and how to achieve them financially, remember that people in your life and the media you consumer can impact your financial choices. Friends, influencers, advertisements, and TV can all change the way we spend our money. Keep in mind that social media influencers are often paid by brands to promote a certain product, so their recommendations may not always be legitimate. And impulse purchases can make it harder to achieve your goals.

Finances are personal, so your spending won’t match your friends’, coworkers’, or others. Your financial situations and goals are not the same, so your financial priorities will look different, and that’s ok. You are already on your way to building a great future by budgeting and creating SMART goals. Way to go!