When you’re young, the one thing that might not be top of mind is your financial future. Most young people don’t realize money mistakes can last for years into the future. Decisions about money can have a big impact at any stage in life.

What we know about our young peoples’ money savvy isn’t uplifting - especially when it comes to their place on the world stage. According to a study done by the Program for International Student Assessment (PISA), one in five teens lack basic financial skills. As they go on to make big-ticket purchases like college, cars, and homes, this lack of understanding can have disastrous effects.

There’s a saying that we can learn by knowing what not to do - and that applies to financial literacy. Let’s look at common money mistakes made in our early years so future generations can see just what pitfalls to avoid.

1. Not Building Your Savings Account

As a young person with a job and few responsibilities, it can be easy to spend on a whim. Whether that’s clothes or food with friends, there’s a certain freedom in having your own cash to blow. But as tough it can be to hold back, one of the most important basics of financial literacy is this: Pay yourself first.

Open a savings account, create a savings plan, and stick to it. Not only would it help you build a cushion for an unexpected expense, but it will begin laying the bricks to a strong financial base in your future.

So, how much should you save? The general advice is to stick to is 15 percent of your income, whether that’s just allowance or from a part-time job.

Another thing to think about is whether or not you are saving up for something. A lot of teens will put money away for a specific reason, like a new set of wheels. While that is a great goal to have in mind, saving just to spend the money shouldn’t be the only reason to save. Building that safety nest is also key - and will give you peace of mind during a later point in life.

2. Borrowing 100% of the Costs of College


There are two kinds of debt: Bad debt and good debt. While college debt is considered good, it’s only in moderation. Just ask almost anyone in the millennial generation, especially the roughly quarter of them who carry over $30,000 in debt. They’re putting off making big life decisions like buying a house or starting a family because they are barely keeping their heads above the financial water.

The latest reports suggest that when you consider books, cost of living, supplies, travel, and other odds and ends, prepare to spend as much as $25,290 for attending an in-state public school. If you’re looking to go to a private college, double that. Sure, having a part time job can offset some of those costs - but not much. If you don’t want a job during your studies, consider taking a few years to work and save before hitting the books.

The costs will skyrocket dramatically when you start considering living off-campus or out of your parent’s home. Rent, groceries, car insurance, transportation costs, entertainment - all of the bills your parents have paid are now your responsibility. Speaking of parents...

3. Banking on Mom and Dad

Some of us were lucky to get an allowance while we were kids. That makes it all the more difficult to realize that our parents will eventually no longer pay us to do the dishes. Looks like the bank in town is the actual bank.

While some parents may be able to provide a bit of financial assistance, relying on it as part of your income is not a strong financial plan. Learning how to spend, budget, save, and be frugal now allows you to take those skills into your college days, helping you start your adult life off on the right financial foot.

4. Going Crazy with the Credit Card

Around 10 years ago, it actually wasn’t that hard for a young person to get a credit card. Whether that was through their parents or on their own once they reached 18, credit was much more available then. After the Credit Card Accountability Responsibility and Disclosure Act of 2009, though, a lot changed - and that’s for the better. 

Credit cards are, by nature, designed to encourage you to spend. When you don’t have much of an idea of money, that can get dangerous, fast. But some parents want to teach their teens how to responsibly spend and help them build their credit before they’re 18. That’s when they decide to add their teen to the credit card account.

If you’ve just gotten your parents’ plastic, consider following these rules:
  • Stick to cash unless you have to use the card, like for an online purchase
  • Do not purchase something you otherwise won’t be able to pay for in cash
  • If you can’t pay back the purchase within a month, do not buy it until you can

 

5. Not Investing in the Long Term

There is truly no better time to start learning about investing than in the teenage years. The reason why is simple: There is no major risk. When you’re an adult with a job, children of your own, a mortgage to pay, taking risks in the stock market is just not something you can afford. But when you have disposable income with little to no responsibilities, that is the perfect time to invest.

While a teen under 18 can’t actually invest themselves, they can get help from a parent or guardian to get everything set up. Learn about Custodian Accounts, and aspects of investment like asset allocation, compounding returns, and all the other ins-and-outs of investing. Start by looking into stock of the companies teens know well, like video game brands, clothing brands, or entertainment brands.


By starting out in life with solid financial savvy, you’re more likely to avoid many of the mistakes most of us make in our later decades. Use loans and credit cards for the real emergencies and keep piling on to your savings account for the rainy days. Get more financial facts by checking out the rest of our blog!