Personal Finance Workshop for Teens (part 1)

A few weeks ago I had the pleasure of teaching a two-hour personal finance workshop to forty high school students from the READ Foundation. This non-profit organization serves at risk kindergarten and first graders by recruiting and training teens to provide structured one-to-one tutoring in reading. The teen tutors participate in a program called “Build Your Future” which provide them with additional skills necessary for college and career success. For the first time, they decided to add a financial education component and I was honored to be asked to lead this initiative.

About two weeks before the workshop, I asked my contact at READ to have the teens write one question that they wanted to know about money. I was presented with 52 questions which I grouped into five categories: banking, college, credit cards, money management and taxes. I developed the two-hour workshop based on these five topics. With so much to cover in a short amount of time, I decided to answer every question and give it to the students as a supplement*. I wanted to share the responses in five installments and get feedback for any additional information that could have been included (or a correction if any information was incorrect!).

*Special thanks to Justin for responding to the tax questions.

Part 1: Banking

1. How much percent of your check should you put in the bank?
If possible, try and put your entire paycheck in your bank account. Having cash in your hands is not only a safety risk, but it’s a lot harder to stop yourself from spending when money isn’t as accessible. Typically you will receive a debit card that goes along with a checking account. With the debit card, you can always withdraw money from your account at an ATM.

2. How can I use a bank account to manage my money?
There are several ways. Firstly, many employers will offer you the option to use direct deposit when you get paid. This means that your paycheck will automatically be deposited into your checking account. It lessens the chance that you’ll forget to deposit a check, or the risk that you’ll spend the money if you have cash in your hands. Once you have money in the account, you may be able to use online banking to keep track of your money. You can log on anytime and see how much money is in the account, and if you make purchases on a linked debit card the expenses will automatically be shown. This can be important in verifying that you weren’t overcharged on an expense. With online banking you can also view images of old checks, transfer funds between accounts and pay bills. Lastly, banks usually offer financial planning tips and advice which will help learn how to manage your money.

3. Why is money destroyed after a certain amount of time?
The short answer… because like all things, money wears out and needs to be replaced occasionally. If you have a bill which is so badly worn out or damaged, you can take it to a bank and as long as at least half the bill is there, the bank will exchange it for a new one. If it is too badly damaged, you can try redeeming the bill by sending it to the Treasury Department who may be able to exchange it for you. The Federal Reserve banks pick up all the damaged bills around the country and shred them. A bag of the paper money shreds can be purchased if you visit one of the Federal Reserve Banks and take a tour of the facility. (Answer adapted from ehow.com ‘What Happens to Old Paper Money?’)

4. How much of your money should you put in the bank?
See #1.

5. What can I use a loan for?
You can use a loan for a variety of things. First of all there are two types of loans: secured and unsecured. Secured loans are backed by some sort of collateral, like a house. That means that in the event that you can’t pay the loan back, the bank has the right to take the asset for themselves. So if you take a loan for a home (mortgage) and can’t pay it back, the bank will take over the house and sell it to make up for the money you owe. Having this collateral makes the loan less risky for the bank, and they will therefore charge you a lower interest rate to borrow money that is secured. Types of secured loans include: car, boat, mortgages etc. An unsecured loan does not have any collateral behind it, so the interest rates are a lot higher (which means you’ll be paying a lot more to borrow the money). Types of unsecured loans include personal loans, credit cards and student loans. Remember, your ability to get a loan will depend on factors like credit history, employment status, income, assets, and debts at the time of application.

6. Can I trust a bank with my money?
Yes! In 1934, Congress established the Federal Deposit and Insurance Corporation (FDIC) to protect the money of depositors. Check that your bank is insured by the FDIC (most nationwide banks are insured, but always good to check!). The FDIC insures deposits up to $250,000 – so if you have for example, $1000 in your checking account and the bank fails, the FDIC will make sure that you don’t lose the $1000 because of the bank’s failure. Remember: FDIC covers only deposit accounts (like CDs, savings accounts and checking accounts) — not mutual funds and annuities.

7. How old do we have to be to get a bank account and have a credit card?
Usually the minimum age is 18 for a bank account and credit card. However that is not always the rule. There may be the chance to sign up for a joint account with an adult. If the big national banks say that you have to be 18, perhaps try a smaller community bank in the neighborhood. Ask them what the minimum age is to have a checking account (or credit card). Also ask them if there are any joint account opportunities, or if you can have an adult co-sign to open the account. Be sure to ask find out about all the fees associated with an account (monthly fee, annual fee, minimum amount in the account etc).

8. How could you manage a bank account?
See #1.

(Originally posted August 23, 2010)