Summer jobs give teens the opportunity to earn money. But with money comes the need for financial literacy. If your teen has a summer job or is considering getting one, consider how to talk with them about what their paychecks will mean, beyond having money to burn. Here are three topics to include in your discussion:
Budgeting for Teens
The best possible time to learn about budgeting is as soon as you’re making money. For working teens, that means now. Talk with your teen about which expenses they are responsible for paying (gas, clothing, eating out, etc.) and what costs the family will cover. This is also a good time to segue into budgeting. After they start working, have your teen estimate their monthly or bi-weekly income and then list categories for expenditures. Make sure they understand the difference between mandatory and discretionary spending. Then encourage them to add goals. Perhaps they’re saving up for college tuition or a new phone.
If you want to drive the point home, encourage your teen to start an emergency fund or help them open an IRA and start regular contributions. Creating a budget can help teens understand how saving a little bit of income each month is the first step to achieve their financial goals. Various free online tools offer easy-to-use services that can help guide your teen toward thinking responsibly about finances.
Taxes and the World of Work
Another lesson that can be hard for teens to learn is taxes. Anyone new to "W-2" employment can benefit from understanding how they're being paid and taxed. Although many teens typically don't make enough money to be taxed, they will still experience payroll and withholding taxes. Parents can create a teachable moment with that first paycheck to discuss how and why taxes work.
Thanks to the gig economy, some teens may even get summer jobs as independent contractors, instead of hourly employees. That means a different set of rules on the back end. Others may need to learn about tipping requirements (tipped employees can be paid below minimum wage as long as certain specific conditions are also met) and the minimum wage laws in your state. Be sure they understand employee rights and overtime requirements so that they don’t find themselves in financial straits when Tax Day arrives.
Teens and Credit Cards
For many young adults, credit cards become challenging financial hurdles. As teens become legal adults, their financial futures open up. Before your teen gets targeted for offers by high-rate credit cards, be sure to talk with them about building credit and how important it is in the real world. Many creditors offer special debit and credit cards for students – some even come with parental monitoring apps – that may be an easy way to instill good habits and a healthy understanding of how credit functions.
Becoming financially literate is one way for teens to increase their sense of independence and control over their world. Many teens are motivated by setting goals for earning and saving to engage more fully in their world.