Penny wise

By Roderick Phillips

Elk Grove High School

With teen employment projected to reach historic lows, saving for the future could be more important than ever for teenagers.

Only 25 percent of teens are expected to have jobs this summer, which could be the lowest employment rate for 16- to 19-year-olds since World War II, according to a recent study by the Center for Labor Market Studies at Northeastern University in Boston.

The cheapest and easiest way to start investing is with a traditional savings account. For teens that don’t have a lot of cash, collecting change from around the house or dipping into birthday cash can be an easy way to add money to your account.

“One of the concepts I’ve used over and over with all of my investors was to pay yourself first,” said William T. Barnes, a personal finance manager with more than 25 years in the industry.

“So if you’re going to get 25 cents, put a nickel over here to save and then use the 20 cents for other items. It’s sort of like an opportunity to think about and plan for something of value that will come later. It sort of teaches discipline.”

A quick Google search for savings accounts that don’t require you to keep a minimum amount of money in the bank lists plenty of options for teens with little start-up money. The federal government insures these accounts for at least $250,000. And many of these accounts do not charge a yearly fee to maintain the account. Plus, some have annual interest rates ranging from one to one-and-a-half percent, which will help grow your money faster.

For teens wanting to look after their older selves, at about retirement age, a Roth account could provide extra financial security that pensions and Social Security once provided for older generations.

A Roth IRA, an individual retirement account, provides investors with an opportunity to invest their money and withdraw it without paying fees after age 59. If you take money out of the account before that, it can be taxed as income.

“Anyone at any age can open an IRA, as long as their earned income can be proved,” said Kevin Campbell, an investment specialist with T. Rowe Price, an investment firm founded in 1937.

“You can start with as low as $50 a month, or a lump sum of $1,000.”

Campbell pointed to an example listed on his firm’s website. By starting with no money and by saving $50 a month in a traditional IRA account, your money will increase to $9,147 over 10 years, $29,451 over 20 years and eventually $74,518 over 30 years, assuming your account earns an eight percent return every year.

The longer your account remains open and is constantly growing the more money your account will gain and the easier financial freedom will be to enjoy during retirement.

For teens who have the signature of their parents and a little more cash on hand, say $1,000-$3,000, they can start investing in mutual funds.

But investment experts warn that mutual funds need more attention than your typical savings account.

“I’m certainly not suggesting this is for teens who have no experience. For mutual funds, teens would be required to have some level of expertise,” Barnes said.

“The reason I suggest mutual funds is because it gives you a certain amount of diversity, because a mutual fund represents a group of clients making contributions together and then someone is managing those companies that are a part of that mutual fund.”

A mutual fund is the most common way of getting involved in the stock market. By taking multiple investors’ money (mutual) and collecting it into a large pool (fund) a brokerage (the certified salesmen of stocks and bonds) can pay its customers (investors) dividends from more profitable stocks because of the high amount of capital (money) that is collected from a large group of people.

However, the Consumer Action Center, a consumer advocacy group focused on investing, recommends Vanguard for small amount investing. You can start for as low as $50 to get your foot in the door and with continued investing that money can grow to be a large amount, giving you more power in the market and more investing options.

While it can be difficult for teens to make money with a narrow job market, it can be done.

By getting into the stock market, you’ll be able to access dividends, dividends are the amount of money that publicly traded companies must pay out to stockholders (because you helped buy the pie you get a piece), and they will be your best friend forever. The longer you save your dividends, the more money that you are able to spend on yourself, or to reinvest.