How To Save Money as a Teenager

Learn how to teach your child the lifelong habit of saving money

Woman showing teenage boys information on computer at home
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Saving early in life is important. What a teen learns today will help them become a financially prepared adult in the future. Therefore, it’s essential for parents or guardians to promote saving and relay valuable money lessons to their teens. These are a few of the things you can do to help your teen save money.

Key Takeaways

  • Educate your teen on the importance of saving money, even if they only have a few dollars to put away each month.
  • Encourage them to find a paying job they enjoy after school, on the weekends, or during summer vacation.
  • Show your teenager how to set short- and long-term money goals and explain how they can work toward them.

Start a Savings Account With Your Teen

It’s unrealistic for your teen to save every penny they earn, so encourage them to start small. Even if they only stash away $20 per month, they can make a positive difference in their financial situation.

Because most banks and credit unions require minors to open a savings account with a parent or guardian, you’ll likely need to set up a joint account in both of your names. Once you do, your teen may want to automate their savings.

If they earn $100 a week, for example, they can ensure $10 gets deposited directly into their savings account. This “out-of-sight, out-of-mind,” strategy can make saving a lot easier for your child, especially if they tend to overspend.

If you open a custodial account for your teen to apply to retirement savings later, encourage them to put their own money in it as well, so they can play an active role in their retirement early on while watching the funds grow over time.

“You can also open a UTMA [Uniform Transfers to Minors Act], an account that an adult sets up for a minor that transfers to them once they reach the age of majority, which varies from state to state,” said Ksenia Yudina, CFA, founder and CEO of UNest in an email to The Balance. “This is a great way to teach your teen about the power of compound interest and delayed gratification.”

Encourage Them To Work

By encouraging your teen to work, you can teach them the value of money. They’ll be far less likely to spend $5 on a Starbucks drink if they know the money is coming out of their own hard-earned paycheck.

“Earning a paycheck, by any means, at a young age gives teenagers self-worth and is a catalyst for the ‘drive’ they’ll need to succeed later in life,” said Jennifer Vartanov, CFO and co-founder of credit card processing company Merchant Industry in an email to The Balance.

Yudina weighed in, “Also, when a teen has a job, they establish a sense of independence, which will make the transition to college or adulthood easier. Teens can work as babysitters; waiters or bussers at restaurants; lifeguards during the summer; or tutors for younger kids. The options are nearly endless.

Not every teenager is able to have a job, depending on personal and familial circumstances, and that is OK. No matter the individual's choice, supporting them along the way will help.

Teach Them How To Set Money Goals

You can help your teen set money goals in a variety of ways. 

“I always encourage parents to look for teachable moments in the real world, such as helping their child set up a budget to save up for something they really want, like an iPad,” Yudina said. “The best way to do this is to sit down with them, figure out how much on average they have coming in per month, how much the item they want costs, and work backward from there.”

According to Vartanov, “You can also encourage them to split up any gifts or earnings in different ‘buckets.’ ” One is the “save” bucket and the other is the “spend” bucket. The save bucket is for important financial goals, while the spend bucket helps teens understand they can splurge on certain things that make them happy, as long as they do so responsibly.

Help Them Learn Where Their Money Goes

“You can help your teen keep track of spending by showing them how much they take home [from working] after taxes and what their monthly expenses are,” Yudina said. “From there, you can work together to determine an appropriate budget.”

Another option is to write things down, including financial goals. There are also a variety of teen-friendly budgeting apps that your child may find useful. Some examples of these apps are Mint and Saving Spree.

You may want to help your teenager set up a recurring transfer to a savings or investment account that they can’t touch.

The Bottom Line

Just like anything else, money habits are formed early, and the sooner you start advising your teen on how to save money, the better. Remember, there’s no right or wrong way for them to save. It all depends on their personality, preferences, and financial situation. As long as you educate your child on the importance of saving money and give them options for how to do so, you’ll help set them up for a financially secure future.

Frequently Asked Questions (FAQs)

How can teens start saving for retirement?

A custodial account (like a UTMA) is a great way for you to help your teen start investing and saving for retirement. You can contribute to it each month so that the money compounds and grows over time, leaving your teen with a sizable nest egg to start their retirement savings.

How much should a teen be saving each month?

Each teen has a unique financial situation. However, as a rule of thumb, teens should aim to save at least 20% of their earnings per month, and they shouldn’t spend more than 50% on discretionary “want” spending.