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Understanding money – a young person’s guide

Our teenagers' guide to money will help you learn about credit cards, insurance, investing, student loans and more.

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Teenagers withdrawing money from an ATM

As a teen it can be confusing to know the best way to manage your money. There are a lot of financial products out there and providers that will quite happily part you with your hard earned cash if you let them.

Our teenagers’ guide to money aims to give you better insight into some of these products so you understand what they are and whether you really need them at this stage of your life.

Should I get a credit card?

If you’re going to study at Uni you might be wondering if you should get a credit card. Student credit cards are designed for young adults and can be handy if you need to pay for items up front. They can also help you build up a credit history and earn you reward points.

However, when you pay for something with a credit card you need to ensure you can cover the monthly bill, otherwise you’ll be charged interest on what you owe. Ideally you should only charge a small amount to your credit card and pay it off in full each month.

If you’re worried you won’t have the self discipline to keep spending to a minimum, or the funds to pay the bill, it’s best to save up for what you need and use EFTPOS or cash instead.

If you decide to apply for a credit card, always compare your options and choose a card that has a:

  • Low or no annual fee. Some providers offer a low or no annual fee which helps keep charges to a minimum. Watch out for cards that revert to a higher fee after a period of time, like 6 months.
  • Low interest rate. A credit card with a low APR (annual percentage rate) is advisable for students, for example, 9.95%.
  • Low credit limit. It’s better to start out with a credit card with a low credit limit so you’re not tempted to overspend.

Are buy now, pay later options a good idea?

Buy now, pay later interest free finance services like Afterpay and Laybuy are offered by many department stores now. They allow you to pay a small upfront amount for purchases now, and pay the rest off later over a period of weeks, without interest.

While the ‘interest free’ part of this scheme is a tempting reason to sign up, be aware that if you miss a payment you’ll be stung with high late fees.

If you don’t have a guaranteed income, it’s better to save, and pay for, small ticket items upfront so you don’t owe anyone money.

Do you need insurance?

Insurance helps you replace items you own if they are damaged, lost or stolen. It can be a good financial product to use if you have expensive items that you can’t afford to replace. Some of the common types of insurance that young people take out are:

  • Car insurance. If you own a car, then you’ll need to weigh up whether third party vs comprehensive insurance to decide which is best for you. Third party is the least expensive and covers damage caused to another person’s vehicle. Comprehensive insurance is slightly more expensive but covers all scenarios. Car insurance is not legally necessary, but it’s certainly recommended.
  • Contents insurance. If you’re going flatting then you might want to consider taking out a cheap renters insurance policy to cover items such as a laptop, phone or tablet.
  • Travel insurance. If you’re taking a trip overseas, travel insurance can be a good idea as it can cover medical costs, lost or stolen baggage and flight cancellations.

There are two types of costs to think about with an insurance policy; the premium and the excess you have to pay if you make a claim. Some insurance companies tailor policies for young people so you’re not paying too much in premiums or excess.

When you’re young it’s unlikely that you’ll need an expensive insurance policy, so always compare insurance providers to get the best deal.

More tips and tricks you can also use to lower your insurance costs include:

  • Look for discounts for buying a policy online.
  • Choose a higher excess amount to lower your premium.
  • Don’t overinsure your items, this will raise your premium.
  • It’s usually cheaper to pay your premium annually instead of monthly.
  • Build up your no-claims bonus to get the maximum discount.
  • Should I start investing?

    Investing is something worth thinking about as a teenager because time is on your side. Even contributing a small weekly or monthly amount to an investment scheme can add up over the years because of compound interest. Compound interest is basically earning interest from your interest, in other words it’s free money.

    The simplest form of investing is putting your money into a savings account that earns interest. While you won’t get rich from the current interest rates, the money you save now can be a nest egg for a house deposit or an emergency fund so you don’t have to rely on a credit card if you get stuck.

    A scheme like KiwiSaver is also worth considering. This is a popular investment platform for young people because it’s free to sign up, the government contributes to it and you can withdraw funds for a first home deposit later on. Once you start working, your employer will contribute money towards it as well.

    Should I get a student loan?

    Taking on debt is something you need to think about seriously, especially if it’s a large amount like a student loan.

    It’s easy at the time to take out a student loan to cover fees, living expenses and course related costs; it’s harder to pay it back.

    On average it takes 6 years to pay off a student loan when you start working, unless you pay more than the bare minimum or contribute lump sums.

    If you are considering taking out a student loan here are some ways you can keep it at a manageable level:

    • Live at home. If you can live at home while you’re studying then you won’t have to access the living costs portion of your student loan. This can save you up to $15,000 a year.
    • Part time job. Working part time will give you the ability to cover some of the costs of studying and won’t leave you with a huge student loan when you graduate.
    • Student Allowance. A Student Allowance can help with costs so you won’t have to use your student loan. For example, if you’re under 24, living at home and your parents earn under a certain amount, you can receive up to $224.35 per week before tax. The good news is that it’s free money, so you don’t have to pay it back.

    Learn more with our top 20 money tips for students

    Summary

    Being a financially savvy teen is all about thinking for yourself and not following what your friends are doing. Just because a financial product claims to be ‘easy’ or ‘convenient’, remember that it may actually cause you unnecessary debt and stress if you don’t manage it properly.

    Overall, if you simply aim to live within your means, and save or invest a portion of any income you receive, you’ll be well set up for the future.

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