Name Date Period Money Management for Teens
Wants Vs. Needs It is not uncommon to hear teens and even adults use the terms wants and needs interchangeably. You might even hear a child say, I need a candy bar. In reality, a candy bar is not a need it s a want. Wants are things that you desire that may enhance your life, but are not necessary for survival. Needs are things that are, in fact, necessary for survival. Knowing the difference between the two is the first step in managing your money. To be financially responsible, one must make sure that needs are taken care of before wants. Financial problems occur when wants come before needs. On the chart below, list several examples of needs and wants. An example of each has been provided. NEEDS WANTS Food Video Game System Budgets and Savings One of the best ways to get what you want and need is to come up with a budget. A budget is simply a plan for how you will spend your money. As kids, you may have separated your money into containers. Essentially, this is a budget. 1
Currently, you may have a savings account or checking account with some money in the bank. You may also have spending cash, so your budget may look like this: This is also a very basic budget. As you get older and have more financial responsibilities, a written budget is a good idea. In the previous two examples, you created two or three categories (i.e. spending, savings, and giving). A written budget takes into account what you are specifically spending money on. The following example is a budget for a high school student who lives at home, has a part-time job, and takes home $400 per month after taxes. Expenses Budgeted Amount Cell Phone $40.00 Savings for College $60.00 Car Insurance $120.00 Gas $100.00 Spending (Food, Clothes, Entertainment) $80.00 Total: $400.00 On the budget below, pretend that you are in high school, you live at home, and you earn $400 per month after taxes. You may spend the $400 any way you choose, but you cannot spend more than $400 total. Expenses Budgeted Amount Total: $400.00 2
Savings Goals A good budget typically has savings as one of the categories. But, what will you save money for? Setting specific goals for your savings will help keep you motivated to save. As a high school student, you probably have several things that you would like that you cannot currently afford. Some of the items that you would like may require saving for several months (video game system, new cell phone, tablet, computer, etc.). Other items may take several years (car, college, etc.). On the table below, list several things that you would like to save money for. List the items in order of importance to you (#1 is the most important and #3 is the least important). Short Term Savings Goals (several months) Amount 1. $ 2. $ 3. $ Long Term Savings Goals (several years) Amount 1. $ 2. $ 3. $ Savings Accounts Pretend that you put money into a savings account that pays you interest every month. After the first month, the interest payment will be calculated based on the money you put in. At the end of the month, when the bank pays you interest, it will calculate the amount based on your original deposit plus the interest you earned in the previous month. Later, that larger, combined amount will earn more interest, and after many years it becomes a much larger sum of money. The earnings are the result of compound interest. You can earn even more in compound interest if you make deposits regularly and stretch to put in as much as you can and leave it untouched. Let s say you put $50 in a savings account earning interest at a rate of 3.5 percent each month. If you add just $10 each month, the account can grow nicely to $714 after five years. 3
Comparison Shopping The best way to stretch your money is to spend it wisely. Comparison shopping can help. When purchasing products or services, it is worth spending some time researching which company has the best deal. There are several ways that you can comparison shop. The first way is by comparing the exact same item and selecting the lowest price. Store Brands $1.29 at SaveCo Market $1.19 at The Bargain Basket Store brands are often similar in quality but less expensive than name brand products. Consider trying store brands to save money. In the example below, the pear halves were packaged at the same warehouse. The pears are the same. You are just paying for the name brand label. Go online to research two different manufacturers of cell phones. Make sure the price is the same or almost the same for both cell phones. Record your findings below. Name and Description of Cell Phone #1: Prices: Name of Website: New Price: $. Used Price: $. Features of Cell Phone #1 Name and Description of Cell Phone #2: Prices: Name of Website: New Price: $. Used Price: $. Features of Cell Phone #2 4
Unit Pricing To determine the true value of a product, read the unit price, not just the package price. The unit price information is usually on a sticker located on the shelf that holds the item. The package price only tells you the cost of the entire item. The unit price shows the cost per pound, ounce, foot, piece, etc. Taking a moment to compare this information in similar products will help you get the best value for your dollar. In the example below, note that at first glance, Brawny appears to be cheaper than Viva if you look at the price. But if you look carefully at the unit price (in the small font), you ll notice that Viva is actually a better price. Viva is 2 cents cheaper per foot. Determining Which Store Has the Lowest Prices Overall To determine which retail store has the lowest prices overall, make a list of 5-10 items that you actually buy on a regular basis. These items should be from different departments in the store. Some stores may have lower prices in one department but may have higher prices in other departments. Check the regular prices on the same items at each store. Write down the prices and total up the prices to determine which store has the lowest prices overall. This will give you confidence in knowing which store you can depend on for the best values on regular priced items overall. Product Price at Store #1 Price at Store #2 Crest Toothpaste 9 oz. $2.99 $2.67 Kraft Mac & Cheese (7.25 ounce) $1.24 $1.03 Shasta Cola (2 liter) $1.49 $1.54 Kleenex (215 count) $1.68 $1.66 Yoplait Yogurt $.58 $.50 Total $7.98 $7.40 5
Credit Cards What is a Credit Card? A credit card is a piece of plastic that gives the consumer the ability to purchase products or services with borrowed money. Credit cards are not free money. Credit cards are a convenient way to pay because you do not have to carry cash. When used wisely, credit cards can help you build a credit history that will improve your chances of getting good house or car loans in the future. Of course, you have to pay the money back. If you pay $50 a month on a $2,000 balance at 18% interest, it will take you five years to pay off your debt! If you pay less than $30 a month, you will never be out of debt! If you are late on payments, for example, you may not be able to rent an apartment, get a car loan, etc. because your credit is checked. Poor credit limits your choices in life. If you can answer yes to these three questions, you might just be a responsible credit card user: Do I need this? Would I make the same purchase if I were paying cash? Can I pay off this amount when the bill comes? How do credit card companies make money? For the privilege of using a credit card, credit card companies charge the user a fee known as a finance charge or interest. They also may charge an annual fee for having the card for that year. If you are late on your payments or you exceed your credit limit, there are additional charges. Depending on how long you take to pay off what you owe, your purchase can cost you more than you ever thought it would. Credit card companies make the most money from consumers who pay the minimum payment. The minimum payment is just a little higher than the finance charge so paying off your credit card becomes nearly impossible. You should always pay more than the minimum payment each month. Credit card companies also charge businesses 2-3% of the purchases that are made with credit cards. 8 Facts Teens Should Know About Credit Cards 1. A credit card is a contract. When you sign up for a credit card, you agree to certain terms and conditions. When you buy something, you have already agreed that you will pay them for every dollar you spend. Credit cards can change the terms simply by notifying you. That means that they can raise the interest rate, change fees, add fees, etc. 2. Unpaid bills put you further and further behind. They lower your FICO score which may be important to your financial future. In your teenage years, you should be getting ahead financially, not falling behind. FICO Scores determine what interest rate you get on money that is loan to you. A bad FICO score will cost you in high interest rates on credit cards, car loans, and house loans. 3. A credit card offer in the mail does not make you special or important. The credit card company wants to make money from you. Owning a credit card does not make you cool. 6
4. The minimum payment is not what you should pay pay the balance in full. It really sounds like the credit card company is cutting you a deal. You owe me $150, but I ll just take $25 for now. Never pay the minimums. Pay your balance in full every month. 5. A higher credit limit is not the goal. In many ways, a high credit limit can be dangerous. Instead, decide how much you might need and ask the credit card company to lower your limit to that amount. Typically, a teen s limit does not need to be above $500. 6. Interest rates and fees. Credit card companies make their money by charging interest and fees. The more interest you pay, the less money you have to save towards your future. Believe me, your future self won t be too happy if all he or she can do is pay interest. 7. Never lend your credit card or credit card number. Also, credit card companies will never ask for your account information. If someone calls and asks for your credit card information, hang up the phone and dial the 800 number on the back of the credit card. If the credit card company needs something, they will help you through that number. 8. People spend more money with credit cards than cash. Writing Checks Examine the diagram below of a check that has been filled out by Jane Doe. It has 11 parts that you should be familiar with. 1. In the top left corner of a check you will find the name and address of the person who is writing you the check. 2. This is the individual check number. Every check has a different number. 3. On this line, you write who the check is for. 4. This is the amount of the check written in numbers. The amount is written near the left edge of the box. 5. This is the amount of the check written in words. 6. Here is the name of the bank that Jane Doe has her checking account with. 7. This is called the memo line. Here you can write what the check is for. You do not have to write anything on this line. 8. This line is for Jane Doe s signature. 9. This number identifies the bank that Jane Doe has a checking account with. 10. This Jane Doe s bank account number. 11. This is the check number which is also in the top right corner of the check. 1 3 5 6 7 JANE DOE 32145 Fern Valley Road Perris, CA 92570 2 4 8 9 10 11 7
Now you try writing a check. Pretend that your name is Jane Doe. Write a check to Walmart for $54.36. Date the check November 27, 201. On the memo line, write School Supplies. Then sign the check as Jane Doe. JANE DOE 1236 32145 Fern Valley Road Perris, CA 92570 Date PAY TO THE ORDER OF $ DOLLARS Scholars National Bank 12464 College Way Perris, CA 92570 FOR 19877200003 16757867 1236 Using a Check Register When writing checks, it is important to remember to keep accurate records of the checks that you have written. If you do not keep accurate records, your check could bounce. Bounced checks can cost you $35.00 for each check that has bounced. In addition to the $35 that the bank charges, the store may also charge you $25-$35 for bouncing a check. The check register below belongs to Jane Doe. Look at how she enters her transactions. Check # Date Transaction Description Payment Amount (-) Deposit Amount (+) Balance 1233 9/25 Target Shoes 38 45 234 15 9/30 Deposit Paycheck 254 13 488 28 10/1 Cash ATM 40 00 448 28 10/2 McDonald s Debit Card 13 14 435 14 10/3 Deposit Paycheck 254 13 1234 10/5 John Doe Birthday Gift 125 00 1235 11/15 The Gas Company 45 16 / / 1. Enter check #1236 on the check register above. Hint: Look at how Jane entered her other checks and use those entries as examples. 2. On the check register above, write in a deposit for $254.13 for Jane s paycheck on November 30 th. 3. Jane forgot to balance her check register above. Do the addition and subtraction necessary to find the most current balance. Write the numbers in the balance column on the far right. When you have finished adding and subtracting, write what the balance is on November 30 th here: $ 8
Getting a Part-time Job There are many advantages to having a part-time job while you are in high school and college. Most part-time jobs pay minimum wage. These earnings can help you pay for things like a car, college, books, food, housing, and other necessities. Having a part-time job can help you learn responsibility, time management, money management, prepare you for adult life, and give you work experience that will help you get better jobs in the future. Not only that, but you will experience pride in knowing that you have worked to provide for yourself. Teens 16 and older generally can work full time, although some states may limit the times of day they can work. Teens aged 14 and 15 can work 18 hours a week but no more than three hours on school days. In the summer, they can work 40 hours a week, eight hours a day. Depending on your age, you may need to get a work permit before you start working. Let s pretend that you got a part-time job at The Donut Factory near your house. You worked 25 hours per week for two weeks. You make $10.00 per hour selling donuts. At the end of that two week period, you earn $500, but your paycheck is only $375.78. What happened? Did your employer make a mistake? No. There are several deductions taken out of your check. In this example, about 25% of your wages were deducted from your paycheck. Some of this money you may get back as a tax refund when you file a tax return at the end of the year. Payroll Check Stub The Donut Factory Week of September 1-15, 2016 29861 Nuevo Road John Doe Nuevo, CA 92567 Employee #: XXX-XX-4532 Wages $500.00 Taxes/Deductions 1. Federal Withholding $68.00 2. Social Security. $31.00 3. Medicare.. $7.25 4. State Disability $4.50 5. State Withholding. $13.34 Net Pay. $375.78 The Donut Factory 1567 29861 Nuevo Road Nuevo, CA 92567 Date September 15, 2016 $375.78 PAY TO THE ORDER OF John Doe $ DOLLARS Three hundred seventy five and 78/100 -------- U.S. National Bank 34557 Financial Way Perris, CA 92570 FOR 19877200003 16757867 1567 James Wilcox How much money was deducted (taken out of) your pay check? $ 9
Multiple Choice Quiz Directions: Look back through the document entitled Money Management for Teens. Come up with five (5) multiple choice questions and possible answers for each question. Bubble in the correct answer. Some of your questions may be used for a future quiz. 1. A B C 2. A B C 3. A B C 4. A B C 5. A B C 10