Earning money at a summer job is a first step toward financial independence. Now that your child has a steady paycheck, he or she is ready to learn the delicate balance between earning, spending and saving. Sharing basic money management skills can lay the groundwork for financial security later on … and some extra cash at the end of the summer.
A Taxing Issue
Earning your first paycheck is exciting … until you factor in taxes. Teach your teen the difference between gross and net earnings. Explain that all workers pay into Social Security and Medicare. Once her earnings reach a certain amount, she’ll also begin paying federal and/or state income taxes.
Money In, Money Out
If you haven’t already done so, help your teen open two bank accounts – one savings, one checking. Having ready access to his funds will help your teen learn the importance of keeping his balance in the black – and how quickly overdraft charges and ATM fees can drain his savings. Tracking his checking expenses will help him identify where his money is going and learn how to budget.
Share Savings Secrets
Have your child contribute part of her earnings toward college savings, even if it’s only to accumulate spending money while at college. Show her how setting aside a certain amount from each paycheck can add up, and how having the amount automatically deposited each pay period can make saving easier.
Let your teen make some independent spending decisions, even if he’ll end up with buyer’s remorse. Poor spending of his hard-earned cash could be a valuable lesson in financial responsibility.
Teens often learn by example. According to a 2010 themint.org poll, parents have the biggest influence on the way kids save and spend money. Continue to model good money management habits for your child, and be sure to practice what you preach.
Source: The Mint, www.mint.org, visited April 8, 2011.
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