According to our Youth Economy Report, children in the UK saved over £12.7 million. That’s about 10% of their total income. It’s pretty impressive when you consider that, according to a survey from the Money and Pensions Service, many adults have no savings at all. One in 20 ( 5%) have less than £50, and a further 4% have between £50 and £100 set aside.
But is saving 10% of their earnings enough? Or should kids be setting aside more? And how much should teenagers really have saved by the time they turn 16?
Related: Money management for teens
How much money should a teen aim to have by 16?
In the United Kingdom, the average savings for those aged 18 to 24 is £2,481, which isn’t a lot if your teen has big plans. As a guide, how much your teen should have saved by 16, depends on a variety of factors (see below).
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Their current situation
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If they have a part time job
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How much pocket money they get
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What their next move will be
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Their future financial responsibilities
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What kind of student loan, if any, they are planning to get
We know from our latest GoHenry Youth Economy Report 43% of teenagers aged 16-18 have part-time jobs, with average earnings of £79 per week. So a percentage of young people have the means to cover their own expenses and save for the future. With 1 in 5, 16 to 18-year-olds saying they don’t expect their parents to give them any financial help at all, it’s not surprising to see 69% have already saved up to £1500 towards starting their own business.
Tips on saving money as a teen?
Adults are advised to save 20% of their income. The general rule of thumb is 50/30/20. That’s 50% for needs, 30% for wants, and 20% for savings.
Experts also recommend having at least 3-6 months’ worth of living expenses saved in case of emergency. (8-12 months is preferable.)
But what about teenagers? How much should they save?
Related: Financial literacy for kids
Building an emergency fund
Ideally, teenagers, like adults, should be saving 20% of their income, whether that’s earned or pocket money, or a combination of both.
Teens should also have an emergency fund. How much of a fund depends on their age.
A 17-year-old whose expenses are maintaining a social life and paying for driving lessons and subscriptions will need more to fall back on than an 8 year-old who saves for toys, for example.
Sure, they’ll still live at home, so any real emergencies, such as needing an item for school, will be covered. But we’re talking teen-type emergencies here. Like not being able to use their phone or being able to go out and buy gifts for friends.
Being financially responsible for their possessions also encourages teenagers to take care of what they have. What’s more, knowing they can replace a cracked phone screen or buy new trainers themselves builds confidence.
Setting savings goals
So that’s the ideal: an emergency fund covering a teenager’s financial needs and saving 20% of earnings. But how much a teenager can really save varies. It’s determined by:
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What their expenses are
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What they’re saving for
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How much money they earn
Teenagers generally have more outgoings than 6-12-year-olds. From 13-18, their expenses begin to look more like adult ones. They start going out with friends and on dates, buying clothes, and maybe paying for subscriptions and phone bills.
Then there’s the question of what they’re saving for. Unless they’re thinking long-term and putting money aside to buy a home one day, the two biggest expenses teens face are paying for university living expenses and buying a car when they turn 18.
Whatever the savings goal, setting a target and deadline are vital to monitor progress. But as teens typically work part-time, the amount of money coming in each month can fluctuate. It’s likely to be more during the summer holidays and less during term time.
Saving a percentage not a monetary amount
Saving a set amount of, say, £50 every month to reach a savings goal sounds like a great idea in theory. In practice, it could prove disheartening. It may be difficult for a teenager to achieve that.
The key to saving is consistency. Get them used to immediately saving a percentage of whatever they’re earning or getting as pocket money, so they learn the money management skills that’ll set them up for life.
Related: Budgeting for teens
Reasons to save money as a teenager
Saving isn’t always easy or fun. But knowing how to save, cover emergencies, set goals and priorities, delay gratification, and prepare for long-term investing are invaluable skills for teens to learn before leaving home.
Here’s a quick rundown of reasons why teenagers should save:
1. It helps them master a key financial skill early
2. It builds self-reliance and independence
3. It teaches them delayed gratification
4. It shows them the power of compound interest
5. It allows them to build an emergency fund
6. It helps them save for college
7. It eventually helps towards moving out and paying rent
1. Master a key financial skill early
Saving is a fundamental financial skill. Learning how to save as a child helps develop financial healthy habits that’ll set them up for adulthood. They’re more likely to make strong decisions about spending and less likely to fall into debt.
2. Build self-reliance and independence
Setting a savings goal, working hard to achieve it then actually buying the item creates a sense of accomplishment. Over time, it builds independence as teens learn they can rely on themselves to fund their wants.
3. Learn delayed gratification
When your kids save up for something they want over a long period and pay cash for it, they’re learning delayed gratification. Saving for big purchases, like a car, or for university, teaches patience and goal setting. And having taken all that time to save the money, they’ll make wiser spending decisions.
4. Maximize the power of compound interest
To maximize the power of compound interest, the sooner kids start saving the better. In simple terms, compound interest is when you earn interest both on the money you’ve saved and on the interest you earn.
Say you saved up £10,000 by the age of 18. You invest it into a mutual fund and don’t touch it till you’re 65. Assuming a rate of 7% compounded, you’ll have around £240,000 by the time you retire.
To show your teens how much they can earn by starting to save young, use a compound interest calculator.
Related: Stocks & Shares Junior ISA
5. Building an emergency fund
Having money set aside for a rainy day will give your teen a feeling of confidence and independence. Plus knowing an emergency won’t put them into financial freefall is one less thing for you to worry about.
6. Saving for college
In 2021, students graduating from English universities will have incurred an average of over £45,000 of student loan debt. Saving for university as a teen (even if they are lucky enough to have you contributing to tuition fees) makes financial sense. There’ll be less to pay back when they graduate. And leave them more to spend in their twenties, when they’ll have far bigger outgoings.
7. Moving out and paying rent
Whatever your teens can save toward a deposit and rent is going to help when it comes to leaving home. It’s not just a month’s deposit and another month’s rent upfront they’ll need either. There’ll be moving costs, furniture, bills and appliances to budget for too.
How to encourage your teen to save
Learning to save and spend wisely as a teen will set them up for a life as a financially responsible adult. But as most teenagers aren’t worried about saving money, here’s a list of ways you can encourage them:
1. Have conversations about future money responsibilities
2. Provide a place to save
3. Set savings goals
4. Help them track spending
5. Discuss needs vs wants
6. Set a good example.
Help your teen set savings goals with GoHenry
A GoHenry teen debit card is a great way to encourage healthy spending and saving habits. Teens with jobs can get their pay paid straight to their GoHenry account, set a savings goal in the app, and track their spending too.
As well as giving teens a feeling of financial independence, parents get peace of mind. Pay in an allowance, set spending limits, and get notified whenever your kids make a purchase. You can block a card and replace it fast if it gets lost or stolen too, all via the app.
What’s more, our in-app Money Missions tool makes learning money management skills fun. Level 2 has been created for ages 12-14. And missions designed to challenge 15-18-year-olds are coming soon.
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