![]() ![]() A budget can provide a useful personal insight into how you allocate your funds. This is where having a budget comes in handy. Another key to creating a meaningful savings account is to ensure you are living within your means. Knowing as much as they can before they open an account can help them choose the bank or credit union that works for them. Then, simply let compound interest do the rest. In this activity you and your teen or young adult will research a bank or credit union’s products and services and explore factors such as locations, rates, and fees. "Researching places where you can save your money can help you decide what financial services are best for you." Explore a Bank or Credit Union Try out the SEC’s compound interest calculator. ![]() Experiment with your child to show the effect of saving different amounts at different interest rates.The example assumes the account earns 5 percent every year. However, if they begin saving at age 35, they'd have about $7,000 at age 65. Show your child the following: If they set aside $100 every year starting at age 14, they'd have about $23,000 at age 65. Compound interest is when your child earns interest on both the money they save and the interest they earn.“The sooner you start saving, the faster your money can grow from compound interest.” Discover the benefits of investing early Explain to your child that they sometimes may need to choose between adding money to a 401(k) or to their emergency savings. Some employers provide matching contributions as an incentive to save, so it’s smart to save at least enough for the maximum matching contribution. Explain to your child that once they start a job, they may be offered a retirement account at work called a 401(k). Saving this amount each day can help you amass enough money for an emergency fund in a year, so dont delay.What will they gain? What will they have to give up? Is it worth it? Explain that, if possible, it’s better to have more savings-like six to nine months’ worth of living expenses, instead of only three.When choosing to open a savings account at a bank or credit union, explain that the interest rate may not be as relevant since the goal is to save enough money to cover emergency expenses. Talk about how to keep money in a safe place, like a federally insured bank or credit union.Talk about how to estimate three months’ worth of expenses, and how much to save from each paycheck to build up their savings. ![]() Help your teen track what they actually spend in a month.Having money in a savings account can help your child avoid having to rely on credit cards or loan options that charge a high interest rate in case of emergency. Explain to your child that one goal of a savings program is to have money readily available in case an emergency occurs.Once your teen has a steady job, help them set up a savings program so that at least 10 percent of earnings goes directly into their savings account.“A good rule to live by is to save 10 percent of what you earn, and have at least three months’ worth of living expenses saved up in case of an emergency.” ![]()
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