Teen Finance 101 - Money Moves for Teens
I recently had the joy of visiting with a teenager from some dear friends of ours. They asked to speak with me about managing their finances now that they’re working and have some income. I was thrilled and felt blessed that he asked me, as getting teenagers and young adults interested in finances is a passion of mine.
I explained that I would walk him through the steps I walked my children through, and to ask any questions he has. I was impressed as he had very thoughtful questions and was taking notes. It also made me very thankful he asked these questions, as it helped me remember that at one point, none of us knew these answers, and for many of us (myself included), we didn’t learn most of these things until much later in life. That made me extremely excited to share this conversation, as I hope it can help others, young or old.
*Please note that I am not a financial advisor, and this should not replace advice from a financial professional. These are the steps I guided my children through, and the same steps I suggested during this meeting.
Starter Steps for Teen Money Management
Open a checking or savings account at a bank you can physically walk into.
There are many advantages to having an account in a local brick-and-mortar bank, such as face-to-face support, cash access, in-person deposits, and the opportunity to build relationships. (Some banks may recognize repeat customers and may offer personalized advice, better rates, or flexibility.)
The downside to local brick-and-mortar banks is that most offer lower interest rates on savings. This is why many only keep part of their money in a local bank for the brick-and-mortar benefits, and then have a secondary account in an online bank that may offer higher interest rates.
Open a Step Card account.
The Step Card is a free banking app and debit card designed for teens and young adults. It allows you to spend money, save, and even build credit without incurring fees or overdrafts charges. Parents can monitor the account, and teens get real banking experience while staying safe and learning smart money habits.
What I appreciate is how the Step card functions like a debit card; however, if it’s lost or stolen, any person who finds it won’t have access to your entire bank account. Yes, they may be able to use the balance on the card, but that’s all they have access to, so my children understand the importance of keeping smaller balances on their cards.
I understand that credit cards may offer more robust security, but many teens aren’t ready for the financial responsibility that comes with them. While some banks offer protection on debit cards, this protection is typically limited. In my opinion, the Step card appears to offer a safer middle ground, providing teens with the freedom to learn while minimizing risk and potentially building some credit as well.
I’ve also heard many adults who shy away from credit cards but prefer the Step Card as they also feel it’s a safer, more controlled alternative to traditional debit cards.
Open a high-yield savings account.
As mentioned before, traditional brick-and-mortar bank savings accounts often offer lower interest rates, so to get higher yields or interest on the money you’re saving, you may want to look into online banks. This is like putting your money to work for you—the first step in learning how to make money while you sleep.
Open a Roth IRA and begin investing.
This is a legacy move that can help set the teen up for long-term wealth. Contributions are made with after-tax dollars, grow tax-free, and withdrawals in retirement are tax-free. This also introduces the basics of investing and how even small contributions can compound significantly over time. This is one of the most powerful financial moves a young person can make.
I also printed out a couple of resources to illustrate the impact his dollars could have.
These free resources I printed were from MoneyGuy.com
Questions Discussed
What is the difference between a checking account and a savings account?
A checking account is used to park money for spending. You can spend this money by writing checks, using a debit card, transferring money online from this account, or visiting a bank or ATM to withdraw cash. Most checking account types do not pay interest on the funds in these accounts.
A savings account is used to save money. This is where you will park your funds that you don’t want to spend right away. Most savings accounts will earn interest, but the interest rate will vary by bank.
What is an interest rate?
This is the reward paid for letting the bank “borrow” your money.
Could there be a downside or concern if a bank offers a much higher interest rate than other banks?
This was a very excellent question, and YES, when choosing a bank, look for one that offers a good interest rate AND has a strong, stable history. Some newer or less-established banks may tempt you with higher rates, but they could carry more risk since they don’t have an established or reliable history. Aim for a bank that balances competitive interest with proven reliability.
What is a Roth IRA?
A Roth IRA is a special savings account for retirement where you can deposit money that you've already paid taxes on, and when you retire, you can withdraw the money (including all the growth it has made) tax-free.
If needed, you can also withdraw your contributions (the money you put in, NOT the growth) at any time without penalty; however, this should only be used in emergencies, as the primary focus of this account is saving for retirement.
Note that when you fund your Roth IRA, be sure to invest that money and do not let it just sit in a cash account. I explained that I made this mistake when I first funded my children’s Roth IRAs. Thankfully, I caught my mistake after a few months, but if you want your money to grow, you’ll need to actually purchase assets in your Roth IRA.
What is an ETF/index fund?
They are a group of investments (like stocks) bundled together. Instead of picking one company, you’re buying a little piece of many at once. This can help spread out risk, making them generally less volatile than buying individual stocks.
For beginners, target-date index funds are especially beneficial, as they will automatically adjust the investment mix over time to become more conservative as you approach your retirement age/goal. They can be a great hands-off way to start investing when you’re just starting out.
To find the best target-date index fund for you, first calculate your retirement year, then choose a fund with a year close to when you expect to retire (typically age 65). Example: If you're 15 in 2025, then a 2075 Target-Date Fund would be a good fit.
What is a share?
A share is a tiny piece of a company that you can own. If the company grows and makes more money, your share becomes more valuable. Some companies may also share profits with owners, paying dividends, which is similar to earning interest on your money. You can then reinvest these dividends, increasing the value of your portfolio.
These were just a few things we covered during our brief meeting—the steps I walked my children through, along with the questions that were raised during our discussion. I hope this glimpse into our conversation can encourage others, whether teens just starting out or adults revisiting their finances, to build not just wealth, but lasting financial wisdom and freedom.
The questions raised during our conversation also inspired me to add a section specifically for teens, so be on the lookout for this new addition.
Also, don’t forget to check out my Annual Financial Checkup Workbook/Course. It’s for all ages, regardless of your net worth, as it will help you find your SWAN number for each financial step.
*I did not get a photo with the teen in the story, but my son helped with the thumbnail. He’s always such a good sport and willing to take any photos with me, even though he’s usually making faces.
