How to Save Money as a Teenager

Teenagers have a lot on their minds, from school and sports to relationships and video games. However, many teens are also thinking about money and their financial future. Studies show that as many as 80% of teenagers are actively saving.^[1]

Whether you want to put money aside for cars, clothes, college, or want to get a jumpstart on retirement savings — and perhaps even become financially independent before retirement age — now is a great time to start.

In this guide, how to save money as a teenager, we’ll cover the basics along with tips for success.

Why It’s Important To Start Saving as a Teenager

There are many reasons why it’s important to start saving money as a teenager. Here’s an overview of some of the biggest “pros” to starting a savings habit early.

Teens May Take Advantage of Compound Interest

Compound interest is the money that may be earned on the money deposited in a savings account (the principal) plus the interest that has been earned along the way.

With compound interest, the sooner you start saving, the more money you may earn.

Here’s an example of how teens may benefit from compound interest: Say you open a savings account that earns 5% interest annually and contribute only $100 to it monthly. If you start saving when you’re 35, there would be roughly $80,000 in the account by the age of 65.

However, if you start saving at age 15, by age 65, the account will have more than $252,000 in it. You can see more examples by inputting different metrics into a compound interest calculator.

Teens Learn Important Financial Skills

Saving money teaches teenagers several key skills such as discipline. Discipline is crucial to having a healthy financial life. It prevents individuals from spending money that they can’t afford to spend and may keep them from going into debt.

Another key skill that teens may learn from saving is planning. Saving money as a teenager may teach how to plan for a big financial goal, such as a first car or college tuition, and how to save money to meet that goal.

Teens May Become More Independent

By earning and saving their own money, teenagers may become financially self-reliant and not have to depend on Mom or Dad when they have a spending need. In turn, this may help teenagers become more responsible in all aspects of life.

How To Save Money as a Teenager

Now that we’ve covered why it’s important to build a savings habit early let’s explore the fundamentals of how to save money as a teenager.

Make a Budget

Before you open a savings account at a bank, it’s important to first figure out how much to save. You may do this by creating a budget, a plan for how much money to save and spend.

The budget that you create may be simple, without any need to use any special apps. In fact, you may make an effective budget with a simple spreadsheet.

To create a budget, simply write down how much you earn per month and subtract regular expenses such as gas money, club dues, food costs, and other purchases. The amount that’s left over may be saved or spent.

One popular approach to budgeting is the 50/30/20 rule. This budgeting guideline suggests you to put 50% toward “needs” — the expenses that must be paid. At the same time, 30% goes toward purchases that you want to make, while 20% goes into a savings account.

However, there’s no need to limit the savings. If your monthly “wants” account for less than 30% of your income, consider saving a larger percentage. That said, it’s important to set a spending limit to keep from saving less than your monthly goal.

Open a Savings Account

Once you’ve figured out how much money you wish to save, it’s time to open a savings account. There are many reasons to open a savings account rather than keeping money only in a checking account or in a secure place at home. They include:

• Many savings accounts earn interest.
• Savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to the maximum amount.
• Savings accounts grant easy access, allowing you to withdraw or deposit funds at a bank branch location or automated teller machine (ATM).
• Using the bank's mobile app, you can monitor an account or make transfers from one account to another. Note that their may be a limit on how many transfers can be made from a savings account before incurring a fee.
• Savings accounts may be linked to checking accounts at the same bank.

How To Choose a Savings Account

When making the decision to open a savings account, it’s best to shop around for the account that best fits your needs. Here are some considerations:

• Fees: Depending on the bank and savings account, you may have to pay monthly maintenance fees, as well as fees for making transactions or overdrawing on the account. The bank may waive maintenance fees if a certain minimum balance is kept in the account.
• Interest rates: Compare interest rates, usually advertised as the APY, or annual percentage yield. This is the rate of interest earned in an account in one year, including any compound interest earned.
• Requirements: Does the bank require you to keep a minimum amount of money in the account? Does it require a certain amount for your initial deposit? Make sure you can meet the bank’s requirements for a specific account before selecting it.
• Benefits: Explore the “bonuses” that come with opening a savings account, such as access to a mobile pay service such as Zelle®, a banking app that lets you keep real-time tabs on accounts, ATM access, etc.

How To Open a Savings Account

Once you’ve decided on the best savings account for your needs, it’s time to apply.

Teens who have not yet reached the age of majority (typically 18 or 19, depending on your state’s law) will need to have a parent or guardian help them open an account. Check with the bank about which forms of identification will be needed. Often, banks require the following:

• A government-issued photo ID, such as a driver’s license or passport
• Date of birth
• Social Security number
• Proof of residential address (such as a school transcript, bill, etc.)

Depending on the bank, this ID information might be required for both you and the adult account “custodian” or, in some cases, the parent or guardian only.

Bring any necessary documentation to a local bank branch or apply for a savings account online. The bank will walk you through the steps of establishing the account and making the initial deposit.

Tips for Saving Money as a Teenager

Here are some helpful tips for building a successful savings habit as a teenager.

Earn Extra Money

The amount of money that can be saved is limited by the amount of money that is earned. You may supercharge savings by earning more money.

There are a number of ways that teenagers may earn extra cash. They include:

• Taking on a traditional part-time job during the summer, on the weekend, or after school
• Doing chores around the house for an allowance
• Making and selling crafts or art at local fairs or online
• Completing paid online surveys
• Selling used clothes, books, décor, etc., online or at flea markets
• Babysitting or pet-sitting
• Doing yard work for neighbors

Make Smart Spending Decisions

Before making a purchase, consider whether it’s really necessary. Sometimes, purchases that seem like “needs” at the time turn out to be only “wants” that could have been skipped.

If you genuinely wish or need to make a purchase, research whether you can find the same or a similar object or service elsewhere for less money. You may be able to save money by using a coupon or discount code — or by waiting for the item to come on sale.

When looking to save, avoid impulse purchases. Waiting a day or two before opening your wallet may prove helpful.

In addition, shopping secondhand may help you save money and stay on budget, not to mention that it is also an environmentally friendly choice.

Set Savings Goals

Having a target for how much money you want to save may be beneficial. Setting savings goals may keep you focused and on target. There’s no need to limit yourself to just one savings goal. Consider setting both goals for the short term and the long term. Short-term goals may include purchases you wish to make in the next year, such as a new computer, a car down payment, etc. Long-term goals may include saving for an eventual down payment on a home, your college education, and even retirement.

No matter the goals, breaking them down into smaller monthly savings targets may help you stay motivated. It may also be helpful to reward yourself with each milestone met — as long as it’s within budget!

The Bottom Line on Saving Money as a Teenager

Saving money, rather than spending it all, is a responsible habit that may help you achieve financial success later in life. Teenagers who start saving money may be able to grow their wealth and meet their financial goals sooner, thanks to the power of compound interest.

It’s never too early to start saving. Explore different accounts and find one that best suits your needs.