## Saving while in your teens leads to big cash at retirement

For teens, small amounts of money saved now can result in considerable savings later in life. Learning the time value of money and how to pay themselves first can be a very rewarding lesson.

You have probably heard the saying “saving for a rainy day.” When people say it, it usually means they are putting money aside in the event they need it for an emergency later. Or perhaps, they are saving for retirement down the road. Years ago, saving was the standard -- everyone did it. Today, there are many mediums out there looking to part us from our money. Teens are at as much risk for spending versus saving as adults, and for teens, the long-term implications can be very costly.

Although most teens earn less than their adult counterparts, they have the advantage of time, and when it comes to saving, time is money. The time value of money is that money’s value after interest earned over a given amount of time is factored in. According to the National Endowment for Financial Education’s Time Value of Money Calculator, an 18-year-old earning money and making a point to contribute \$2,000 a year to a savings account earning seven percent interest, will in 10 years have saved \$29,567.20. Thus, the teen has earned greater than \$9,500 on their savings investment. Furthermore, if they never contributed another dime to the account beyond that point but left it to gather interest each year, by the time they retired at age 65 the account value would be \$361,418.15. Through such a plan, it might be said one is truly “saving for a rainy day.”

Adults can encourage teens to open a savings account and begin paying themselves first from each paycheck they receive. If the teen is working for an employer who offers direct deposit, guide them to have a set amount of money immediately taken from their check and placed into a savings account. Another way for teens to save money is by placing their loose change in a special bank or jar. On average, people save an additional \$300 to \$500 a year this way. Teens that get started on a regular savings plan often discover the joy of watching their money grow and look for additional opportunities to put money into their account.

More valuable tips and information on personal finances can be found on line. Learn more about savings and investing by exploring what is offered through eXtension, America Saves and Michigan State University’s Children & Youth Institute