- You can start saving and investing even if you don’t have a lot of money or financial knowledge.
- There are easy, low-risk ways to invest small amounts of money.
- Make a budget to figure out how much you can afford to put into a savings or investment account.
When you’re in high school, saving for your future may not be high on your priority list. But the earlier you start saving money and earning interest, the more money you’ll have when it’s time to buy a home, start a business, have children, travel the world, or pursue any other goals you have in life.
Your generation is actually off to a good start: A 2017 study led by the Center for Generational Kinetics found that 21 percent of Generation Z had a savings account by age 10, and 12 percent have already started saving for retirement.
“Saving is like exercising or going to the gym to build muscle,” says John Pelletier, director of the Center for Financial Literacy at Champlain College. “It’s not always the most pleasant thing to do, but most of us can save something, [and] it helps build the habit.”
Why start saving now?
There will always be plenty of reasons to put off saving money—you need that cash now to pay your phone bill, go out with friends, buy those new shoes, etc.—but the earlier you start saving, the more money you’ll be able to make. This gives you a secure foundation for your future and means you’ll have to worry less about money when you’re older.
“It’s always good to save,” says Olivia, a sophomore in New Hampshire. “You never know what could come up that you’ll need money for.”
Putting your money in the bank instead of your wallet can also help you avoid impulse spending. “When the money is out of your direct sight, it’s much easier to not waste it,” says Caroline, a junior in Ontario, California.
Let’s look at a few simple steps to get started.
How to find the best savings account (even if you already have one)
Even if you already have a savings account at your local bank, there’s a good chance you can earn higher interest rates (the amount the bank pays you for letting them hold your money) by establishing an online savings account. Note that if you are under 18, you will not be able to open an account in your name only, but you may be able to open a joint account with a parent or legal guardian.
Pros and cons of online savings accounts
Pros: Higher interest rates, convenient online transactions
Cons: No ATMs, may have limits on transfers
The most important thing to look for when setting up your first savings account is to make sure the bank has FDIC insurance. This guarantees your money is just as safe online as it would be in a “regular” brick-and-mortar bank. And with so many apps and online options for bill payments, transfers, and other transactions, an online bank may be able to offer all the financial services you need. Also, with the convenience of online banking and mobile payment apps, depositing your money in a savings account doesn’t mean you can’t use it when you need it.
- Is there a minimum initial deposit or balance you must maintain?
- Is the interest rate only an introductory rate that will drop later?
- How often is interest compounded? (More often means more money for you.)
- Are there convenient ways to deposit, transfer, or otherwise access and use your money?
Simple and safe ways to earn higher interest rates by investing
What’s important to understand is not just that you should save money, but also that you should put it somewhere where it will grow. A high-interest savings account is a great start, but when you have enough money set aside, you should also start thinking about investments. This doesn’t just mean buying stocks; there are multiple ways to invest small amounts of money safely.
Lauren, a junior in California, says she’s already started saving and plans to start investing as soon as she learns how. “I do not know much about investing, but the most successful people in my life invest, so I know that there is something good in it,” says Lauren.
The FDIC is a government agency that insures certain bank accounts up to $250,000. If your account is FDIC-insured, then even if the bank goes out of business, you’ll still be able to get your money back.
The interest rate on your savings or investment account is the amount that the bank pays you for letting them hold your money. Standard savings accounts currently offer very low interest rates, but there are other types of accounts (such as online savings accounts or CDs) that pay higher interest without requiring you to take any risks.
If you invest $100 and your interest rate is 2 percent per year, you’ll have $102 at the end of the year. But if your interest is compounded more often, you’ll make money faster. For example, if interest is compounded monthly, you’ll make 1/12 of 2 percent every month. The first month, you’ll make about 17 cents. Then you have $100.17 in your account. The next month, your interest is calculated based on that amount, not the original $100. It may seem small at first, but once you have a decent amount of money saved, compounding makes your money multiply much faster. You should always check how often your interest compounds.
A certificate of deposit is like a loan that you give your bank. You make a commitment that you will keep your money in the bank for a specific period of time (typically one or more years). In return, you earn higher interest than you would if you kept the money in your savings account.
A certificate of deposit (CD) is a great investment for a student with limited funds available. In fact, opening a CD is not much different from depositing money into a savings account. The main difference is that, in exchange for a higher interest rate, you commit to keeping your money invested for a defined period, often one to five years. (This means you can’t take the money out without penalties until the one to five years are up.)
Pros and cons of CDs
Pros: Higher interest rates than savings accounts, but equally safe
Cons: Your money is “locked up” for one or more years
When you set up a savings account, check whether your bank offers CDs and how the interest rates compare to those on your account. If you can safely put aside the money and earn more interest, why wouldn’t you? Like savings accounts, CDs are FDIC-insured.
“The money you put in when you’re younger has the most time to grow, so even if you put in a little bit, it can grow a lot,” says Geoff Sanzenbacher, assistant director of research at the Boston College Center for Retirement Research. “Also, it’s good experience for when you’re older and you have a job and more investment options.”
Figuring out your investment budget
Investing in a CD is a great way to start multiplying your money during high school. But before you start, you need to figure out how much you can invest. This means you need to plan a budget that breaks down your income and expenses. Start by figuring out all your sources of income. This could be anything from a part-time job to a weekly allowance or a check your grandmother puts in your birthday card every year.
Once you have your total income, add up your expenses. Be sure to include necessities, such as gas or phone payments, as well as what you spend recreationally: going out with friends, buying new clothes, or doing hobbies or other after-school activities.
If you know what your income and expenses will be, you might want to put some of your investment into a longer-term CD that offers a higher interest rate. If you have $200 available to invest now, you might decide to put $100 into a one-year CD and use the remaining $100 to invest in a two-year CD. With this approach, you’ll get $100 (plus interest) back in one year, so you can reinvest or use that cash if you need it, but you’ll still be earning higher interest on the $100 you invested in the two-year CD.
Bankers call this a “CD ladder.” It’s actually fairly common, and it’s a great way for high school students to get started with small investments.
Start multiplying your money now
Now that you know how easy it is, it’s time to get started and take control of your financial future. The earlier you begin putting money into a savings or investment account, the less you’ll have to worry about money as you get older.
“Start small,” says Heather McElrath, director of communications at the nonprofit Jump$tart Coalition. “Try just $1 a week or $5 a week—it all adds up.”
That $5 you put in your savings account today will grow into a lot more by the time you’re ready to buy a house, start a family, or retire. The most important thing to do now is to just get started.
“You’re going to need emergency money eventually,” says Paige, a freshman in Helotes, Texas. “So if you start saving now, then there won’t be any stress later on.”
Heather McElrath, director of communications, Jump$tart Coalition, Washington DC.
John Pelletier, director, Center for Financial Literacy, Champlain College, Burlington, Vermont.
Geoff Sanzenbacher, assistant director of research, Center for Retirement Research, Boston College, Massachusetts.
Pritchard, J. (November 28, 2018). CDs are among the safest investments for your IRA. Retrieved from https://www.thebalance.com/basics-of-the-cd-ira-315235
Schiavone, J., & Lynch, J. (April 12, 2017). Less than half of non-retired Americans confident they’ll reach financial goals by retirement: AICPA Survey. Retrieved from https://www.aicpa.org/press/pressreleases/2017/less-than-half-of-non-retired-americans-confident-theyll-reach-financial-goals-by-retirement-aicpa-survey.html
Villa, D., & Dorsey, J. (n.d.). The state of Gen Z 2017 national research study. Retrieved from https://genhq.com/gen-z-2017-research-white-paper/
Student Health 101 survey, June 2019.