Teenagers today are pressured to excel academically and participate in extracurricular activities as résumé-builders for college applications, but the traditional summer job may provide the best lessons for life.
Certainly it will help teach basic money management skills. But experts also say part-time jobs develop work ethics for teens, open them up to the joy of receiving a paycheck for a job well done, and plant the seeds for growing those wages through investment.
Your teen’s job and outside income offer new—and real—tools to school them about money. If your child receives an allowance, don't cut it off once he starts working. Instead, use the increased income stream as another means of teaching basic money management skills, like saving and budgeting.
Here are some other tips:
Shop around for a bank. Lesson No. 1 for teens is the world of fees tied to finances and banking. "Shop around to find a financial institution that works for you,” says Brian Page, an Ohio high school economics teacher and national advisor for the H&R Block Budget Challenge. “Look for low- to no-fee and zero- to minimum-balance requirements."
Set your teen up with a savings account, checking account, and debit card. Explain how these different accounts work, especially pointing out that while debit cards might not look and feel like hard, cold cash, they act like it because the money comes directly out of the account. Show them how to keep track of the charges and to keep regular tabs on the account balance.
Next, teach teens the you-won’t-miss-money-you-don’t-see trick by having them deposit half of their paychecks into savings and the other half into a checking account.
Help them develop a budget and shop and pay for their school clothes and other necessities. That way they might not fall into the hole that H&R Block says many do. The firm’s recent Dollars & Sense study found that 57% of teens make purchases using their own money, but only 17% maintain a budget.
Teach them how to monitor their bank balance with their phone. Their smartphones are like second heads anyway, so you might as well teach them how to use those phones for mobile banking. Some 51% of smartphone owners use them for banking at least once a year, according to the Federal Reserve’s 2014 Consumers and Mobile Financial Services study.
"There is a lot of research that shows using your phone to manage financial decisions has a positive impact,” says Page. “Have them get in the habit of checking their balance on their phone before they spend."
Show teens how to set up text alerts if they are nearing a minimum balance requirement.
Make sure they file a tax return. Unless your child earns more than $6,200 in wages, they don't need to pay taxes. If taxes were taken out of their paycheck, show them how to file a return to get their tax refund.
Invest the windfall. Talk about investing opportunities with their tax refund or wages, perhaps with a big-picture goal in mind such as a car or college tuition. Time, of course, is on teens’ side when it comes to creating wealth in the stock market over the long term. Talk to them about the basics of trading and companies that you're watching. They might start to explore mutual or index funds. There are a number of interactive trading games that they can practice with, as well as a variety of sites that cater to teen investing. Teens can put $5,500 or up to their earned income amount (whichever is less) into an individual retirement account (IRA). So, for instance, if they make $4,000 over the summer, they could contribute that $4,000 to an IRA; if they earn $7,000, the max contribution would be $5,500. And, a Roth IRA can be used penalty-free for college expenses as well as saving for retirement.
Parents need to talk to teens about more than just sex and drugs. Money, budgeting, saving, and investing rank up there in importance, and a little education can go a long way toward helping your child become a financially responsible and successful adult.
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