One of my goals during Ben’s high school years is to teach him many life skills, including financial responsibility. This is an area in which my husband has always excelled (even as a young, single man), but I have not. I grew up watching my single mom struggling to pay bills and using credit cards to get by, amassing quite a mountain of debt in her younger years. I followed suit, never being taught that credit cards are one powerful way to get poor. I don’t want this for Ben.
Recently, he overheard a conversation between my husband and me, when we were discussing the balance of our mortgage. Remembering that conversation, Ben later asked me how buying a house worked. This began a discussion on the ins and outs of home ownership, including financing such a large purchase. When we came to the part of needing a large sum of money up front as a down payment, his eyes got huge — “How do people save that much money??!!”
So, we sat down and figured out how he could possibly save enough money, beginning now, to have a down payment to purchase a $180,000 house by the time he is 30. I remembered reading an article awhile back that showed a method of retiring with a million dollars in the bank and thought perhaps that method scaled down for a teen might be helpful here.
We began by choosing an amount of money he could earn now with a little effort, just by doing jobs in our neighborhood (mowing lawns, walking dogs, pet sitting, etc.). Our weekly figure in the beginning assumes he can earn about $70/week (giving him $7 to tithe, $30+ to save, and the rest to spend).
The concept is simple — begin with $30/week, and continue increasing the savings amount by $3/week every year on his birthday. The idea is that after one year of saving weekly, another $3/week will not be that noticeable. Also, as he gets older, he will likely have the opportunity to earn more money.
Using this method, that initial $30/week amount will have doubled by the age of 25 when it’s likely he’ll be out of college and working a full-time job. We did discuss how this will likely mean a few lean years in college, a time when money may be short. And that he may need to sacrifice extra spending money in order to continue saving during those years.
This is how it plays out to equal enough money for a nearly $40,000 savings by the time he turns 30 (enough for a 20% down payment on a $180,000 house):
Age 15 @ $30/week = $1560
Age 16 @ $33/week = $1716
Age 17 @ $36/week = $1872
Age 18 @ $39/week = $2028
Age 19 @ $42/week = $2184
Age 20 @ $45/week = $2340
Age 21 @ $48/week = $2496
Age 22 @ $51/week = $2652
Age 23 @ $54/week = $2808
Age 24 @ $57/week = $2964
Age 25 @ $60/week = $3120
Age 26 @ $63/week = $3276
Age 27 @ $66/week = $3432
Age 28 @ $69/week = $3588
Age 29 @ $72/week = $3744
Age 30 Total Saved = $39,780 (20% down payment on a $180,000 house = $36,000, with a cushion for extra costs)
Click to download this saving schedule as a PDF.
Given that you would likely put this money into a savings account, there would be a small amount of interest earned as well (that might be our next lesson!). Also, bear in mind that house prices vary from state to state, and even within cities and towns within a state. Right now, $180,000 will buy a pretty nice house in Kentucky. Of course, it’s nearly impossible to guess how much the value of houses will change in the next 15 years, but we have owned our home for 13 years and the value has not changed that much, so it’s possible $180,000 will still buy a decent house in 15 years in areas of the U.S. that do not have an outrageous cost of living. If you live somewhere like California or New York, you may want to adjust the chart for your teens to accommodate for this.
Ben was pretty impressed with how quickly the money adds up, and likes the idea of being able to buy his own house at such a young age (much younger than most people are able). In fact he asked me to print out the schedule to hang on his wall to motivate him both to seek out ways to earn money and remember that saving is important for his future goals.
This type of schedule can work for your teens whatever their goals. If they continued this method until retirement age, they would have quite a little nest egg for retirement without investing (ie: risking) a cent. Of course, they would also likely be able to increase the weekly savings amount once they are in their careers earning a higher wage.
Doubling the base savings amount at age 30 to $140/week, and continuing to increase that by the $3 rate on his birthday every year would mean your child could retire at age 65 with over $300,000 in the bank with no investment risk. Even with subtracting out the down payment on the house at age 30, that’s nearly a quarter of a million dollars left in savings by the time he retires.
I wish I had been taught to do this at his age. I would love to have been able to save this kind of money so easily! This method can work for those older than 15 as well, if you can work to catch up to the total savings amount for your age. For example, if you (or your child) is currently 21 years old, if you (or he) began at the savings rate for a 21-year-old ($48/week), you (or he) would have $28,080 by age 30. After just 2 more years of savings, the total savings would quickly rise to $36,036, only delaying the house purchase by 2 years.
This would also be a great method for parents to use to begin saving for college for their children. If you begin at birth, by the time your child is 18, you will have saved over $50,000 to help with college expenses. For someone like me who only has one child, this would have been totally doable had I known how to do it. Of course, for large families, unless your income is quite high, this might not work for each child, but even if you split it among all of your children, it would help. And you can continue saving for the younger kids as your older ones move through college. You can always get your children started saving at a younger age as well.
I want Ben to be able to buy a house by age 30, not drown in debt because we didn’t teach him how to easily save money and use credit responsibly. I think most parents feel that way. Beginning to teach this concepts early will hopefully prevent any financially irresponsible behavior as they enter young adulthood. This is just one way to do that. I’ll be sharing more ideas in the coming months.
How are you teaching your teens financial responsiblity? I’d love to hear your ideas as well. Let’s chat in the comments.
Financial Literacy from a Christian Perspective
Financial Literacy from a Christian Perspective is one way we are teaching Ben even more about personal finance. Through textbook instruction, online articles, videos, and interactive exercises he is learning how to set financial goals, budget, how to save and invest, using credit responsibly, taxes, and more. We are using this course as a full high-school credit for math.