teachme

viewhistorytalk

Advice for high school students and teenagers | ages 15-20

Introduction

Are you just starting out your independent life, and looking for financial advice on how to adult? Have we got advice for you! Here's a collection of pointers to topics of interest to many young people in the US (and other developed countries although the specifics pertain to the US in some cases).

Note that this is financial advice, not general life advice. Only you can know what will make you happy or unhappy, whether you'll profit more from taking a trip or watching your investments grow.

If you don't see your favorite topic here (e.g. houses, retirement accounts, investments, etc), be sure to read the later guides.

Invest in your education

If you're in high school or a recent high school graduate, you should be planning on attending college or earning a vocational certification of some kind. The best investment you can make is improving your future earnings potential.

  • For cost-effective education, it's hard to beat community colleges. If you're not sure what to do about continuing your education, look into two-year degrees, as well as taking credits that transfer to four-year colleges.

  • If you are looking to head straight to a four-year college, strongly consider going to a four-year state school.

  • Do not go to a for-profit college as they are expensive, generally not well-respected, and credits are very difficult to transfer to an accredited four-year college.

  • Make sure the college you choose is accredited and has the following listed on their website:

    • Average starting salary of graduates in their chosen field
    • Percent of graduates that receive a job in their chosen field within the first 6 months
    • A great career center that will continually help you find jobs, along with a successful career fair
  • If you need money to continue your education, learn about student loans. This is a complicated topic with many options. Be careful what you do here, since these loans will be yours / your parents until they are paid off! People who find themselves in trouble later usually took out bigger loans (~$100,000) vs. smaller loans (~$20,000).

  • Fill out the Free Application for Federal Student Aid by the end of June 30 of the year you plan to go to college so that you'll be eligible for grants and federally subsidized student loans. If you aren't quite ready for college, you can use the FAFSA 4Caster to estimate federal grants and loan approvals.

  • Avoid taking on loans that exceed the future earning potential of the degree by too large of a factor. Use the debt/salary wizard to determine the suggested maximum amount of debt you should incur based upon your projected salary or what salary you should be earning based upon your current debt.

  • Some people consider military enlistment or ROTC as a way to pay for college. That's a valid approach, but it is a big commitment. Talk to some people in the military or veterans other than your recruiter before you commit. Also note that dropping out of ROTC can be very expensive so you should probably not enter ROTC if you have any potential medical or mental health issues.

Have a plan for your education

You ideally wouldn't go out and buy a car without doing a bit of research on what existing owners of that make and model had to say. Why would you get into five (or even six!) figures of debt without doing a similar amount of research? If you're at all on the fence about going to college, or your chosen major, it makes sense to find someone who's gone through your prospective degree program, take them to lunch, and get their feedback on how their path has treated them.

  • Did their degree path make sense for them?
  • If they could do it again, would they?
  • What advice would they have for someone considering following in their shoes?

Once you've done this, it would behoove you to gather additional data points. Don't just cherry-pick someone who's become a breakout success. Try to talk to people in the middle of the pack, or even some folks who went through the program and failed. Consider fallback options as well. If your career plan requires certain things that may not come to pass (such as being accepted into a top ten law school), and your plans are forced to change, what are your options? An undergraduate degree in business or engineering at that point may bear more fruit than a bachelor's in philosophy.

Think about your career

If you're headed to college, think long and hard about getting a degree that won't pay for itself. For any career, you should talk to several people who work in the field about your education plans and that career path to make sure your plan makes sense.

What about STEM?

A lot of noise has been made lately about STEM careers. However, remember that your working career is going to span multiple decades; that's a very long time to spend doing something you aren't passionate about—or at least enjoy. Virtually nobody wakes up eager to go to work just because of their paycheck so it's important to pick something that excites you, because without passion, you're most likely destined to never be particularly good at your field of study.

  • Science
  • Technology
  • Engineering (click for more information)
  • Math

Banking

  • The big change in your life at 18 (19 in Alabama and Nebraska) is you are now legally an adult for contractual purposes, so time to get bank accounts in your own own name, i.e. not with your parents. You want a savings account and a no-monthly-fee checking account. Small banks and credit unions typically have better customer service.

  • You're not going to get rich off interest, sorry! But you can find better savings interest rates (1%!) at online-only banks. Put away savings as soon as you can, it's a good habit to get into, and starts your emergency fund. We'll cover investments and retirement savings in future posts; with limited or part-time income, savings are a better bet for now.

Credit

  • College is often when young adults start building credit via student loans and credit cards, but it's also when a lot of people start a long relationship with expensive debt.

  • If you are responsible with money and have income, applying for a credit card can be a reasonable move for many people. This is different than the debit card your bank will provide with your account. It's a very good way to independently establish credit without paying interest. A secured or student card is probably your best option.

  • Pay the balance in full every month! If you can't do that or you're not sure if you are ready, then you should not get a credit card. You can always build credit later when you have a more steady income and more experience handling money.

Working

  • You may find yourself working part-time or even full-time. This is a good time to learn about your rights and responsibilities as an employee, including how you are paid and taxed, as well as what your employer can legally do with your hours and even when you can be let go. Fortunately, taxes are low for most young people (if only because their income is low...), and you may even get a refund if you file taxes! While your lifetime income is the single biggest determinant in your personal finance situation, at this age, your priority is not on current income as much as preparing for the future, thus the focus on education.

  • If you're earning extra money, consider saving it as an emergency fund and for education expenses, following the advice in "I have $X, what should I do with it?".

Budgeting and Saving

  • This is also the time to start learning about budgeting if you have significant responsibilities; more on this in future posts.

  • If you want to save money, live with your parents as long as you can. Seriously! But there comes a time when you want to / have to leave, and you'll need to rent a place. Landlords will want to see that you have income, so try to keep payments below 30% of your takehome pay. You may need a co-signer if you have minimal credit history. You'll need first month's rent and a security deposit up front, and even utility deposits sometimes. Read your lease before you sign it, and know your rights and responsibilities as a tenant, and what organizations can help you if you encounter issues.

  • Roommates are a popular way to save money on rent. Be aware of the issues that can come up with roommates though, since circumstances change, and you may be on the hook for their share. Have all roommates on the lease. You might even want a roommate agreement. Perhaps Sheldon Cooper has it right after all? Alternatively, consider renting a room from someone who owns their own house.

  • Aside from rent, cars are the biggest expenditure for many young people. You can save a lot of money if you don't need to pay for one! It's not just the purchase cost. There's gas, repairs, and especially car insurance, which is very expensive for young people, typically at least $100/month, and can even be $200/month in some places, or if you have a tickets / accidents.

  • Your best bet if you do need a car is to save up $5000 or so for a reliable used car, then pay cash, so you can avoid finance charges and make your own insurance choices. If you do need to finance a car, be very careful of financing offers for young people. Double-digit interest rates are a Bad Thing. You do not want to "build credit" that way! The loan and the car are different things. You can't give back the car and be done with the loan, since you will typically be "underwater" and owe more than the car is worth.

  • Choose your spending wisely. Money spent is unavailable for anything else. Make sure it was your highest priority use of that money.

Acknowledgements

This guide incorporates the ELI18 guide written by /u/yes_its_him.


revision by dequeued— view source