Do your mom and dad ever say to you, "You should really save your money for college and stop blowing it on video games"?
My mom and dad say this to me all the time.
In fact, I remember when I was five and I started getting an allowance. My parents told me to budget my allowance and save some for my future.
I said, "I'm only five, why save now?" Now, at the
age of eleven, I understand why.
The Author Age Eleven
I understand a lot more now that I'm eleven!
CloseIt helps if first you understand a few words.
Why are college and saving for college important?
My Dad's Story
My father went to a two-year college after high school. He studied engineering.
At that time, his tuition was $12,500 for the full two years. His total debt with books, and other necessary college items, was about $20,000.
Less than a year after graduating, he got a job at Toyota Motor Manufacturing. Without a college education, Toyota would not have hired my father.
People my dad works with are still in the same position they were when he started. But he has moved up to better jobs in the company because of his college degree.
Recently, my father decided to go back to college to study business management. He goes to a four-year public university.
His tuition will total more than $42,000 by the time he graduates. This cost does not include his books, computer, and other materials.
By going back to school, my dad will be able to keep getting better jobs.
CloseBudgeting
The first word is
budget which my parents helped me understand.
Together, we listed everything I spent money on. This includes video games, coloring books, football cards, candy, and other treats.
I wanted to save money every month. But I was spending every penny. Sometimes, my parents even had to lend me more money.
My mom showed me how to decide what spending was necessary. This included stuff for school such as notebooks, calculators, and pencils.
Saving
By saving, you can get free money.
Free Money!
Ask your parents to help you find a way to invest your money. Investing means you will get free money. Yes, that's right. I said free money. It's called interest.
Here's how interest works: Suppose you put $100 in your credit union savings account. Let's say it earns interest at a rate of 2% a year. In a month, you'll earn one-twelfth of that 2% (2%/12=0.16%). That means you'll have $100 plus 16 cents in your account after 30 days or so.
The second month you'll earn interest not just on $100 but on $100.16. In other words, you earn interest on your original money plus the interest that it already earned. It's called interest compounding. In one year, your $100 will earn a total of $2.02.
OK, maybe $2 isn't a lot of money in your world, but think of this: There are three ways you can get lots more free money:
1) Invest bigger amounts. Invest $100 each month at 2% and, after one year, you'll have $1,213—that's $13 in interest.
2) Invest longer. Invest $100 each month at 2% and, after five years, you'll have $6,315—that's $315 in interest.
3) Find higher interest rates. Invest $100 each month at 5% and, after five years, you'll have $6,829—that's $829 for free!.
That's why everyone says, "you should begin saving while you're young."
CloseThe second term I learned about was saving. My parents helped me understand by showing me how to save for small things first.
It's hard to save for expensive items when you're that small, so I saved for items like video games.
Every time I had money to save, I would think to myself that I was saving it for my reward, which was the video game.
As I got older, I started saving for college and realized the video games weren't as important. I learned the word
invest...
