I’m a Teenager with a Job—Should I Start Saving?

Many kids at this age work to meet their basic needs, as they are financially responsible. For others, their needs are covered by their parents' income. If you are a teenager who is working for extra allowances, this is a great opportunity to start saving and benefitting from the magic of compound interest.

Compound interest is the interest earned on both the money you save and the interest that has already been earned. For example, if you deposit $100 into a savings bank account with an annual interest rate of 1%, you will have $101 after one year (assuming no withdrawals). In the second year, the 1% interest will be applied to the full $101, not just the original $100. This snowball effect grows over time, and the earlier you start, the more your money can grow.

This is a great calculator by Securities and Exchange commission that can show the beauty of compound interest after years of saving:

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

For example, if the original deposit in a savings account with APY 1% is $50 with a monthly contribution of $10, in 10 years you will have $1310.70.

Photo source:Compound interest calculator at Investor.gov

The same scenario : after 20 years of saving and regular contributions:

 Photo source:Compound interest calculator at Investor.gov

You can see the red and green lines getting further apart—- starting to save EARLY is a key point here.

Developing the habit of saving at least 10% to 20% of your income is a good start.  There are different strategies out there to help manage your money—like the 50-30-20 rule, envelope budgeting, or the "pay yourself first" method. These are mostly geared toward people who are already earning regularly, but it’s still helpful to learn them early. You might not use every strategy now, but understanding them puts you ahead when you're ready to manage a bigger paycheck.

Another advantage is more of a behavioral benefit—having a saving mindset makes us more aware of wasteful spending and helps us avoid impulse shopping. These habits will have long-term benefits

In future posts, we will cover the basic types of bank accounts- focusing primarily on checking and savings accounts with some discussion about high yield savings accounts.