Financial literacy is one area that is not widely taught at school but is definitely required for everyday living.
If you have a teenager who has just begun part time work and would like to get them considering how best to manage their money, then ensure you read the below and next week’s blog.
Income splitting into 3 expense categories
Firstly get them thinking about what they are required to put aside to cover their fixed costs and then secondly what percentage they would like to put towards the Fun and Future buckets.
What percentage they put towards the Fun and Future buckets will come down to what is important to them at the time.
For many adolescents getting their first vehicle is a big goal that they would like to achieve by the time they leave school.
In Maddie’s case, she has just turned 15 and started her first part time job working at McDonalds 2 nights a week. She earns in the hand $100 per week and would like to consider saving for a vehicle, but would also like to have some money to go to the movies or out for lunch with her friends.
The only fixed cost she has to date is the cost of her mobile phone which is $20 per week. The remaining $80, she would like to put $30 per week away for Fun and the remaining $50 per week to saving for a vehicle.
If Maddie was to continue to save $50 per week for the next 3 years and receive a return of at least 3% via her internet banking account then she would have $8,160 (today’s dollars) to spend on a vehicle at age 18.
Seems pretty simple in theory but for many these fundamental principles of saving for a future goal can be hard to put in practise and the principal of bucketing these savings into another bank account might just help to keep the focus on the end goal.
Frances Easton CFP, M.FinPlan, B.Bus Acc, is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Note: This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.