The Job Market’s Looking Up for Teens—Are Their Money Management Skills Ready for That First Paycheck?

Summer jobs can help teenagers get a first-time look at money management—and sometimes, first-time experience with money mistakes. Either way, first jobs can shape a young person’s relationship with spending, saving, and investing for a lifetime. It’s a chance for parents to help a child adopt valuable skills that can help them build a solid financial foundation for the future. 

A May study from Drexel University’s Center for Labor Markets and Policy forecast the 2022 summer employment rate for 16- to 19-year-olds at 32.8%. It’s the highest level since the Great Recession of 2007-2009 and represents a major recovery from the overall hit to the job market during 2020’s early COVID-19 lockdowns.

“A summer job provides access to learning opportunities as teens get a pool of money they can control,” said Robert Siuty, VP, senior financial consultant at TD Ameritrade. “Encourage them to make good choices now, and it can positively impact them for the future.” Here are some of the money moves a teen can make—and some of the lessons that can be learned—from a summer job.

Set Up a Bank Account

Now’s a good time to help your teen learn about banking—as well as monitoring their money. Consider setting up a bank account for your teen. You’ll probably need to open a custodial or joint account because minors aren’t allowed to open bank accounts on their own.

“Teach your child about using direct deposit for their paychecks and show them how to monitor their account,” Siuty suggested. “With the banking apps available now, they can do it from their phone.”

Some teens may benefit when they connect their bank account to a personal finance app to help them see where their money is going. Seeing the categories can be beneficial for teens because it gets them used to thinking about how they spend their money.

Even with new tools, however, money management for teens should begin with understanding a bank statement and how to reconcile their account. These skills can help teens develop a connection to their money and their spending—and potentially learn to make good choices down the road.

Create a Budget and Save Up for Purchases

Be clear about what your child is expected to pay for on their own. In many cases, trips with friends, entertainment, and some other items should be covered by your teen once they have a summer job. Talk about creating a budget and directing financial resources toward the things that matter.

“Now’s a great time for teens to learn how to set goals for themselves,” Siuty explained. “Helping them learn to budget their money and save for things they want can help them establish good habits for the future.”

Siuty recommended helping your teen set up categories for spending and saving and distinguishing between short-term and long-term goals. This can also be a good time to help your teen find causes they care about and learn how to allocate some of their money toward charity.

“A summer job is a perfect way to show teens that they have some control over how they use their money and they can accomplish good,” Siuty pointed out. “Show them that a budget can help them stay on track and have an influence.”

Having that income stream can help a teen become more fully aware of the true cost of a splurge.

Start Investing, Including for Retirement

It’s never too early to start investing for retirement. In fact, the earlier your teen starts setting aside money, the more likely they are to build wealth for the future. Show them how setting aside a portion of their paycheck can mean a start toward their financial future.

“A Roth IRA allows for earnings to hopefully grow tax-free for retirement,” Siuty explained. “In 2022, a teen can contribute up to $6,000, but just remember that the contribution cannot exceed the amount of earned income the teen received in the year.” Be sure to consider a Traditional IRA before opening a Roth IRA as both have advantages and disadvantages.

Also, don’t forget to teach your teen about investing in a taxable account. Show your teen how their money can hopefully grow by letting them see their portfolio balance on a regular basis.

You’ll need to open a custodial account because teens can’t open their own accounts. Remember that once your child reaches the age of majority for the account, they will have access and control over the funds. Help them learn the basics of investing, including the importance of researching potential investments, so they’re more likely to make informed choices in the future.

Link the Summer Job to a Career Conversation

It’s good for a kid to lifeguard, flip burgers, or babysit for a summer. It gives them a taste of responsibility, a chance to build confidence with money, and hopefully a better idea of what they want to study in college and do afterward. But if your child is naturally entrepreneurial or good with technology, recognize those special talents and make them part of the overall discussion about how saving, spending, and investment can enable their life and career goals.

Don’t Forget About Taxes

Double-check your teen’s income and the IRS website to see if your child should file a return. Even if your teen doesn’t owe money to the government, they might be eligible for a refund, especially if their employer withheld taxes. Run the numbers to find out what’s most beneficial and help your child with the return so they get used to it.

Bottom Line

A summer job can be a great way for your teen to learn more about money and even increase the financial resources they have access to. In addition to helping your teen appreciate work, summer jobs can teach them valuable lessons about money management—including how to start investing. Take the time to help your child move forward, and the foundation of financial knowledge they build will benefit them for decades to come.