Chapter Eleven: Everything Else You Need to Know

Pat yourself on the back! You have already learned a bunch of financial information that will equip you for effectively managing your finances now and in the future. As you go through life, there will be plenty of new financial concepts to grasp, and you will need to constantly evaluate your money situation and find ways to stretch your dollars further. Managing your money is a constantly evolving process, but you are starting out in great shape because of your understanding of the basics (and more).

The next few topics are briefly discussed because you should know about them in order to manage your money as best as you can. Keep in mind, however, that these topics in particular can vary greatly depending on where you live, how much money you make, and what your living situation is.

Investing

Investing involves more than putting money into the stock market. An investment is a situation in which you put money into something you think will eventually make more money, therefore giving you even more money than you started out with. For example, a producer gives money to a theater company to put together a stage play with the hopes the ticket sales will be enough to make a profit for the producer. Another example of investing is buying a home, renovating it, and selling it at a higher price than you purchased it for.

Should you invest money right now? Here are some things to consider before investing in anything, now or in the future:

Can I spare this money? There is always risk involved in an investment. Consider the producer who invests in the stage play. What if the play is a flop and no one buys tickets to see it? In this case, the producer loses his or her money. Always keep in mind that you should not empty out your savings account to invest in anything. Money spent to invest should be extra and should not compromise your ability to pay your bills or live with life’s necessities.

Do I understand the investment? Whether you want to buy stock in your favorite company, or you want to buy art you hope will be worth a lot of money someday, don’t invest money in things you don’t fully understand.

Am I ready for ups and downs? You shouldn’t expect your investment to always make money, especially if you invest in the stock market. Stocks go up and down — sometimes wildly — and if you are going to be a long-term investor, you will have to get used to your profits fluctuating.

Before investing, try out an online investment simulation program that allows you to practice investing before you actually spend the money. This can be the best introduction into the world of investing and will show you the possible outcome for any money you invest. Try Investopedia.com or HowTheMarketWorks.com’s simulator. For a site investment simulator designed specifically for young people, visit www.weseed.com.

Taxes

You get your first job and make $8 an hour. You work 15 hours in your first week and anticipate receiving a check for $120, but when your check arrives, it is for less than the expected amount. Why? When you work, whether you like it or not, a portion of your income goes toward taxes.

What are taxes? Taxes are charged by the government based on a percentage of your income. Not all states charge taxes, but you will be required to pay federal taxes. The government uses the money obtained from charging taxes to fund everything, such as fire departments, welfare programs, and the military.

The taxes you pay depend on what state you live in and whether your parents claim you as a financial dependent on their income tax forms or not. You will pay federal income tax and may also have state taxes to pay, depending on where you live. You will probably also have a portion deducted for social security and Medicare.

If you don’t understand why money is being taken out of your paycheck, speak up! Talk to your boss or parents about the money being taken out of your paycheck and make sure you know where your money is going. Other possible deductions you might see on your paycheck, which are not necessarily related to taxes, include:

• Charitable contributions you signed up to contribute to.

• Retirement accounts, such as a 401(k). If the company you work for offers retirement accounts, signing up is usually a smart idea.

• Any amount of money you owe to the company for whatever reason, such as tuition reimbursement repayment or repaying a salary advance.

You will deal with taxes for as long as you live, so be prepared to routinely see money taken out of your paychecks to go toward taxes. For more information regarding taxes that is specifically designed for teens, check out www.usa.gov.

Insurance

Insurance is something designed to cover costs for an unexpected and substantial expense. You pay a set amount each month to the insurer, and the insurance company covers your costs if an event happens in which you need to utilize your insurance. Here are examples of common insurance policies:

Car insurance: This covers the cost of replacing or repairing your car if you get into an accident and also pays for damage done to vehicles and property in an accident when you are the one at fault. Car insurance can also cover medical bills and other related expenses.

Health insurance: This pays for the cost of medical care, either fully or partially, and is usually provided through employers or parents. You can buy health insurance on your own, but it is usually very expensive.

Life insurance: This pays money upon your death to whomever you specify as your beneficiary. For example, if your mother is listed as your beneficiary on your life insurance policy of $50,000, she will receive that money if you die. Life insurance is not something you will likely need to be worried about at this point, but it is a good idea to be familiar with the term in case you hear others around you using it.

Homeowner/renter insurance: This covers the cost of repairing the place you live and the property in the residence if a natural disaster or other covered instance occurs.

What insurance policies do you need right now? This is something you should talk to your parents or an insurance agent about, as it varies widely according to an individual’s situation. However, a typical teen who lives with their parents may not need to purchase any additional insurance unless he or she purchases a car. If you are a college student residing in a dorm or off-campus housing, you will want to purchase renter’s insurance to protect your property.

If you are not covered by your parents’ health insurance coverage, look into obtaining health care coverage through the school you attend, the employer you work for, or through a state-sponsored program. Buying a full health insurance policy on your own may prove nearly impossible if you do not work full time.

If you want to learn more about insurance, check out the Junior Achievement Web site: www.ja.org.