Individual Development Accounts

These accounts are available through your local Community Action Agency.You will take courses to help you understand more about money and how to use it wisely. Meanwhile, they will help you save your money. For every $1 you put in the bank, they will add additional money! These funds can only be used for education after high school (college and job training), starting a business, or buying a house. For more information click here or contact your local Community Action Agency.

Opening up a Bank Account

There are many advantages to opening up a bank account. A bank account will give you a safe place to keep your money and if you like, you will be able to access that money almost anywhere. Savings accounts are intended to help you save money. The bank will add a percentage to the money that you have in the bank. How often this occurs and how big of a percentage depends on the bank.

Checking accounts are useful for when you have a steady flow of income and bills to pay with that income. You can have your employer automatically put your paycheck into your checking account (a process called direct deposit). With your checking account, you can receive checks and a debit card. Checks and debit cards work similarly, they both tell the store that you are buying from that you have money in a bank account and they both give that store permission to ask for your money from your bank. This way, you do not always have to have cash on you.

With a check, you write the name of the store, company, or person who is allowed to take your money, how much money they are allowed to take, and the date that you are writing the check. Your bank information and your address is already on the check.

A debit card, on the other hand, looks like a credit card. It will have a credit card logo on it and stores that accept that credit card (they will have a matching logo on their door) will take your debit card. By entering in the pin that you have chosen at the bank, you are able to skip the process of writing a check. This is a safe way to pay your bills, as it is illegal for stores and companies to take more money from your account than they have your permission to take. However, it is very important that you keep track of who you have given checks to, where you have used your debit card, and the amounts.

This may all seem confusing. You may want to start by saving money in a box or a jar. Once you have saved enough money, ask for help to deposit it in the bank. Your foster parent, caseworker, youth development coordinator, or other adult in your life that you trust can help. You can even ask them if there is a class available in money management. Some banks, schools, and other local agencies offer classes.

Pay Yourself First

If you learn how to save early, you will do yourself a lot of good. One suggestion is to start saving a minimum of 10% of everything that you earn--right now. If you get used to putting aside 10% of your income, you will not miss it. This is a concept often called "paying yourself first". If you set aside more, like 15%, do it. Don't touch this money. This is your long-term investment. Click here for advice about the best way to invest this money for the long term.

Credit Cards

As soon as you turn 18, you will likely receive multiple offers for credit cards. However, just because you receive these offers does not mean that you should sign up for one. Every time you make a purchase with a credit card, it is like taking out a loan--with a very high interest rate. Credit cards are different than debit cards, because with a credit card you are NOT spending your own money. You are spending someone else's money and promising to pay them back later. The problem with this is that you have to pay back more money than you borrowed. Even worse, the longer you wait to pay it back, the more you have to pay. Credit cards can be very, very dangerous. They do have some good uses, such as renting cars, establishing credit, etc. However, until you have been able to save money and maintain a budget for a couple years, you should be very cautious about getting a credit card. Many people end up with huge debts because of credit cards.

For more information about credit cards, go to firstcreditcardresource.org

Credit

What is “good credit”? What is “bad credit”? What happens if you don't pay your bills on time? Do you get rewarded if you always pay your bills on time?

Companies have a way of keeping track of who has been able to pay their bills on time in the past. And yes, they do reward people who have paid their bills on time. They also punish those who haven't paid their bills on time. When you pay your bills on time, you establish “good credit”. Everyone has a credit score, based on their credit history (the debts they have, if they pay their bills on time, etc.). If you have a good credit score, it will make your life significantly easier. You will pay less interest on loans for cars, houses, etc. You will find that it is easier to get loans. If you have bad credit, you will pay high interest rates and companies will be hesitant to trust you with their money. With bad credit, you can't even have a cell phone in your name.

The way the credit score is calculated is pretty complicated. The major point is that it is important to pay your bills on time. While you can recover from bad credit, it is best to never have bad credit to begin with.

You can receive a free copy of your credit history once a year; however, you will have to pay for your credit score (you actually have three credit scores, calculated by three different companies). If you are not planning on taking out a loan, don't worry about paying for your score. However, if you want to be careful, you can check your credit history to make sure that it is right. For your free credit history go to: https://www.annualcreditreport.com/cra/index.jsp.

Taxes

If you work, you have to pay taxes. After you have been hired, your employer will ask you to fill out a W-4. The address you put on this form will be where you receive all tax information, so try to make it a stable address or at least try to remember what you put down. This form essentially asks how much money you would like the government to take from your paycheck each month. The more money you give them each month, the less likely you are to owe them money at the end of the year. It is like paying ahead of time for a purchase. If you overpay, then the government will give you that money back (a tax refund).

Some people use the worksheets that come with the W-4 to calculate how much money they will owe at the end of the year and adjust how much they will pay per month accordingly. The safest bet is to just enter 0 where it asks for exemptions. The government will take more money each month, but you will be sure that you don’t owe them any money. In fact, you know that at the end of the year you will get money back from the government. The downside to this is that you don’t get as much money out of your paycheck each month.

When taxes are due in April you will need to file federal taxes as well as state taxes in each state that you work. You will be mailed W-2 forms from any job that you have worked at in the previous year (ex, if it is March of 2007, you should be collecting W-2s from where you worked in 2006). It is very important to find these forms, they may have been sent to an old address. Call your employers to ask what address they have for you and make sure you keep your address updated. The W-2 forms are supposed to be mailed to you buy January 31, so if you haven’t received them by then, call your employer. You may also get other tax forms, saying how much money you earned on interest, how much money you paid in tuition, etc.

Once you have all your W-2s, you can file your taxes. This is a somewhat tricky process and it is good to get help at least the first time that you do it. You can ask any adult that you trust, you can also call 2-1-1 and ask them for information on free tax preparation. Make sure that you claim an Earned Income Tax Credit if you qualify (ask whoever is helping you prepare).