This Is How Rich You'd Be If You'd Saved the Money You Earned in High School
In 1978, the summer of my junior year in high school, I was offered a job at a Kentucky Fried Chicken franchise. It was owned by a family friend who needed more staff. My parents thought it would be a good first "summer job," and so I began working. The job paid the California minimum wage of $2.65 an hour. It was fun, at first, since all of my coworkers went to the same high school, and we passed the time by goofing off and chatting a lot.
But when I began receiving my checks, I was shocked at the difference between what I thought I would be earning, and what I actually took home. My father, a math teacher, explained the hard financial facts to me.
I wish he had explained this one: compound interest. (In retrospect, he may have decided that arguing with a headstrong 16-year-old was not picking his battles wisely.)
What is compound interest? Basically, it means allowing your earnings to accumulate, so that they earn interest, too. And if you take advantage of its power early on, you can accumulate funds much more quickly. Read on to see how much money I'd have today if I'd saved my high school earnings.
The Power of Compounding
I was working 20 hours per week at $2.65 per hour, which, before taxes, equalled $53 per week. Over the course of a couple of years, I earned about $5,500 (gross).
Let's pretend that I had taken $4,000 of that and invested it in the stock market, earning near-average historical returns of about 10% for 37 years. (Watch this great video if you want to learn how to calculate compound interest by hand.)
- My Principal: $4,000
- My Annual Interest Rate: 10% or 0.10
- Time: 37 years
You'll probably want to use an online compound interest calculator to do your own calculations.
That original $4,000 would now equal approximately $136,000. Pretty great, right? And if I don't touch it until the "official" retirement age of 65, I'll have over $350,000. That's more money than most Americans retire with — all from just a measly minimum wage high school job!
Had I invested that $4,000, I would be pretty tickled with myself right now. Instead, I probably blew it all on sodas, movie tickets, records, and whatever else teens were buying back then.
Advice on Compounding for Teens
So, if I were to advise a teenager right now, what would I say?
1. Get a Job
You will want to earn some of your own money. It will give you some independence, help you develop confidence, and learn responsibility.
2. Start Saving ASAP
Many banks have special "teen" checking and savings accounts. Open accounts, and decide how much you will put in each of them on payday. You'll need to learn how to manage and balance a checking account. Once you have some funds built up, open a brokerage account and invest in a target-date retirement fund.
3. Be Wary of Debt
Eventually, you may have to take on some debt, for something like a student loan or a car. Learn about interest and credit cards. Don't sign up for debt without getting good advice first.
4. Learn How to Budget
You are about to need to figure out how to make your money stretch. Start by keeping track of what you spend, and where. This is usually the point where adults start packing their own lunches and making their own coffee.
5. Educate Yourself About Investing
You should start investing as soon as your start making money. Thanks to the power of compound interest, a dollar saved today is worth much more tomorrow, so get started ASAP. Learn the basics of investing, and find a trustworthy adult, such as a parent or banker, to help you make sound choices. You'll thank me someday if you do.
Did you invest the income from your high school job? What's it worth today?
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I did invest in High school! I took $3000 and put it into a mutual fund when I was 16. I haven't touched it since, and the current value is $8500. Pretty sweet compounding and dividends! I'm not sure when I'll be able to add to it. I need to maximize my tax advantages accounts first. If only I'd been smart enough to put it in a Roth!
I am so jealous! Did your parents advise you, or did you just figure it all out? How neat!
Thank you for bringing back memories of high school jobs. My old neighborhood in Rancho Cordova, CA was somewhat blighted back in the 1980s but there were jobs to be found. I did save the money I made from working part time in high school. It provided the basis for a nest egg that grew for many years. It is easy to get a head start even from small-time cash jobs.
Anthony, thanks for the comment. In hopes of inspiring teenagers, what sorts of jobs did you work?
I was a cashier at CVS drugstore in 1987. I was making $3.50 an hour at the time when minumum wage was $3.35. Some money I saved, some I spent on cassette tapes, wine coolers and lip gloss. Most weekends I baby-sat for extra cash as well. After high school I had about 2 thousand dollars which was the money I used to strike out on my own as an independent adult.
Had to laugh about the "cassette tapes and wine coolers . . .". Nice to have a good nest egg to get out on your own! I did some baby-sitting, too. With some of those kids, that was hard work, wasn't it? Tx for relating your story.
I started this process and I am only 11. By the age of 101, my $2000 will be worth 9.2 million! Amazing, right. It is worth it and if you are going to do this, I would recommend getting 1 year C.D.s in the bank and investing with the growth and income plan at Edward Jones. Yes, I AM smart for my age.