Personal Finance 101

The cool thing about savings accounts is that banks pay you to have one! The money they pay you is called interest. It’s a percentage of the total amount in your account. For example, if you deposit $100 in a savings account that pays 3% interest annually, you’ll earn about $3 over the course of the year. It might not sound like much, but soon you’ll start earning interest on your interest. Over time, this really adds up! (See how in “That’s Interest-ing!”)

Are you ready to start earning interest? You can open an account at a bank. If you’re under 18 you’ll need a guardian to help. “I recommend opening an account that has tools to keep track of your money—both savings and spending—and parental controls for safety,” says Millar.

The cool thing about savings accounts? Banks pay you to have one! The money they pay you is called interest. It's a percentage of the total amount in your account. For example, a savings account might pay 3% interest annually. If you deposit $100, you'll earn about $3 over the course of the year. It might not sound like much. But soon you'll start earning interest on your interest. Over time, this really adds up! (See how in “That’s Interest-ing!”)

Are you ready to start earning interest? You can open an account at a bank. If you're under 18 you'll need a guardian to help you. Millar recommends an account with online tools to help you keep track of your spending and savings. It should also have parental controls for your safety, she adds.

Credit cards are similar to debit cards. They’re useful, but you need to be careful with them. When you use a credit card, you’re borrowing money from the bank. At the end of each month, you need to pay back what you borrowed. If you don’t pay it all back, the bank will charge interest on what you owe. And if you don’t pay on time, the bank can charge late fees!

Credit cards can be dangerous because of how the interest and fees add up. The interest banks charge for credit cards changes regularly. Some credit cards charge more than 30% interest each year. So if you buy a $100 pair of jeans with your credit card and you don’t pay back the full $100, after a year those jeans can cost you $130—or way more!

Credit cards are similar to debit cards. They're useful, but you need to be careful with them. Credit cards aren’t limited by how much is in your account. When you use them, you're borrowing money from the bank. At the end of each month, you need to pay it back. If you don't, the bank will charge interest. That means you owe them even more! Banks can also charge late fees if you don’t pay on time.

Interest and fees add up quickly. That’s why credit cards can be dangerous. Interest rates on credit cards can change unexpectedly. Some banks charge more than 30% interest each year. Say you buy a $100 pair of jeans with your credit card. If you don't pay it back, after a year those jeans can cost you $130 - or way more!

When creating your budget, you should also plan to save a portion of your income. Financial experts recommend that adults save at least 15% of their income. To figure out what amount you should save, think about your financial goals. Do you want a new gaming console? Your first car? Then think about how much you can comfortably put aside each week or month. The earlier you start saving, the sooner you will be able to make your goal a reality. “Knowing how to manage your money empowers you to make smart decisions about how to spend it. Having a plan to save, spend, or invest are the keys to financial success,” says Millar.

Normal expenses aren’t the only ones to think about when you’re making your budget. You should also plan to save some of your income. Experts recommend that adults save at least 15% of their income. But how much should you save? To figure that out, think about your money goals. Do you want to buy a new gaming console? Your first car? How much will that cost? Then think about how much you can afford to put aside each week or month. The earlier you start saving, the sooner you can meet your goal! "Knowing how to manage your money empowers you to make smart decisions about how to spend it,” says Millar. “Having a plan to save, spend, or invest are the keys to financial success."