Adulting 101 How to save money and invest as a teen

Custodial Accounts

Your whole life you've heard that if you want to make money easily (not easily, but easier than normal), then you should invest. You think to yourself "that's not a bad idea" and go to start. That's when you hit a brick wall: a message saying you aren't old enough. Custodial accounts help prevent this.

A custodial account is a type of investment account that is for a minor but managed by a parent or guardian. The parent or guardian can "gift" up to $15,000 in funds into the account every year. As soon as the money is in the account, trading can commence. Trading must be done by your parent or guardian.

As a minor, you aren't allowed to contact the broker to execute the trades. The custodian has to do all of this for you. However, you can give your parents the money to gift it to your account, and tell them the trades you want to do. As soon as you turn the legal age in your state (21 in Florida), the account ownership transfers to you.

Just like all other investment accounts, a custodial account can have many types of investments. Stocks, options, mutual-funds and more can be invested in, but it is best to start with a simple thing, like stocks.

If you don't want to use an in-person broker, many online brokers also offer custodial accounts. You can learn more about brokers and stocks in general from the Spark published by CavsTV in late March.

Savings Accounts

Unlike custodial accounts, there are many types of saving accounts. There are regular savings accounts, money market accounts, certificates of deposit, high-yield savings accounts, and specialty accounts.

The following accounts will not only be described, but an interest rate example will be given. Assume all have a starting investment of $10,000, compound daily over 10 years, and have no extra deposits after the original $10,000 deposit. In reality, you can deposit as much as you'd like whenever you'd like. APY (Annual Percentage Yield) is a calculation of interest rate in a matter of percentages. APY is the main difference between types of accounts.

Regular savings accounts are exactly as they sound, just a regular, old savings account. They earn interest, though it is usually low. They allow quick access to your money, allowing up to 6 withdraws every month. This type of account usually runs at 0.04% APY, but going as low as 0.01%. Assuming the 0.04% average, after the investment described above, $10,040.08 will be in the account. A gain of $40.08, or nearly 2 cents every day of the 10 years.

Money market accounts are like the last account, but it has different requirements, better rates, and comes with a checkbook and a debit card (which count towards the 6 withdraws per month). It requires a minimum balance of $1,000 to avoid the monthly fees. They usually have an APY of 0.50%. In the investment described above, $10,512.71 would be the balance, a gain of $512.71 or about 14 cents every day of the 10 years.

Certificates of deposit are unlike other accounts, with one you agree to not withdraw any money within a specific amount of time, called a "term". The term ranges from 6 months to 5 years, at an average APY of 0.80%. $10,161.29 would be the balance after 2 years. This is because of the term length. If a term were to be 10 years (which is extremely unlikely), it would have a balance of $10,832.86.

High-yield savings accounts are just like regular savings accounts, except at a higher interest rate. Rates start around 0.5%, but go up to 2% APY, one of the best (if not the best) interest rates on any savings account. After 10 years on a $10,000 investment, the balance would be $12,213.96, a huge increase of nearly $2,500. Remember, there are no additional investments, so 125% of what you started with is pretty darn good.

Specialty accounts are accounts with specific purposes. Roth IRAs are accounts for retirement, 529 Plans are college funds, and health savings accounts are for health expenses. Among these are many more. Most expensive things in life have savings accounts designed for them.

General Tips

Now that you know all about different savings accounts and how to invest, you should learn how to save little extra amounts, which have the potential to add up even more than the interest from your savings account(s).

Saving some money every time you get some can really add up. Set a percentage for yourself and every time you make any money set aside that percentage of it. There are apps to automatically do this between bank accounts.

Using actual bills can help you realize the amount of money you spend. Instead of swiping a card you have to count out all the money, making you think about the purchase more than you usually would. This will help you think before you buy.

Make it harder to shop online. Don't have your cards saved so it takes longer to buy something. You'll make fewer impulse buys.

There's a rule for budgeting called the "50/30/20 Rule". This means 50% of income goes to your needs, 30% to your wants, and 20% to your savings. As a teen, there aren't many needs that aren't taken care of by someone else, so you may want to split the 50% between the other 30% and 20% until you must cover your own needs.

Each bank has different accounts with different conditions, like a minimum balance, fees, different interest rates, and more. Usually online banks have higher APYs, but a physical bank has things to offer too. Research which account would be best for you. There are online tools such as interest calculators to help you. As always, do your research before investing and ask your parents for some help, and maybe even a bit of money (don't get too greedy, they need to buy things too).