Part time jobs can give teenagers new found freedom and money to spend. Just how well your teen handles his or her first paychecks can set a precedent for life. Here are some ideas that may help your teen make the most of his or her part time salary and develop a solid basis for future financial success.

Set a Good Example

Parents should provide a good example of financial responsibility and involve their children in money management activities. It’s important that teenagers see their parents live within their means and practice sound money management -- budgeting, setting long-term financial goals, making wise purchases, saving and investing. Start by reviewing the family budget and making your teen aware of monthly bills. Demonstrate how saving, rather than taking on debt, helps you buy the things your family needs. Also, explain your investment plans and strategy.

Teach Them to Save and Spend Wisely

When your teenager starts receiving paychecks, demonstrate how to save and spend. In other words, help them develop a budget. Establish three categories: essential purchases, savings, and discretionary items. Discuss and agree upon the essential items you expect your teenager’s paycheck to cover. This may include car insurance, gas, telephone bills, or school lunches. After establishing essential expenditures, set a savings goal with your teen, but be sure money is left over for fun. Your teen will be quickly disillusioned with working if there’s no money to play with.

Make Saving a Priority

Planning for future purchases is an important learning experience. For successful savings, encourage your teen to define his or her financial goal, and develop a plan for saving toward that goal.

Teenagers should have a bank account. A savings account is best for younger teens, but older teens should know how to use a checking account. Teach your teen how to write and record checks and how to balance statements.

Teach Savvy Shopping Skills

Encourage your teen to comparison shop by checking prices with different retailers. Show them how to save money by buying generic brands or shopping at thrift shops. Make sure they grasp the concept of unit pricing so they better understand what they are getting for their money.

If you believe your child is spending too much money on frivolous things, have him or her create an expense log showing exactly where the money is going. Your teen may not even realize how much money is being spent on snacks, entertainment, and other activities. This can help put spending habits into perspective and inspire your teen to change his or her ways.

Explain the Real Cost of Credit

Your teen should start learning about credit before arriving at college and finding a mailbox filled with credit card offers. He or she should know how credit cards work and understand that late or unpaid credit card bills can affect the ability to buy a house or car in the future.

Most importantly, educate your child about the hidden costs of using credit. Explain that if a purchase is made for more than what can be paid back in one month, they will be subject to interest charges that add to the cost of their original purchase.

You may want to consider giving your teen the experience of carrying and using plastic as an authorized user on your credit card account. Your child would get a card with his or her name on it, but pay you for any purchases made during the month. If your teen doesn’t pay you on time and in full, you would charge interest on the overdue balance.

Talk Taxes

Teenagers probably get their first introduction into the world of taxes when they discover their paycheck was less than expected, thanks to income tax deductions. It’s important to be sure your child understands the responsibilities for paying taxes and, if required, filing tax returns.

Finally, it is wise to keep track of your teen’s earnings so that you and your child have an understanding of how your child is spending their money.

 

Please contact us at Roth CPA & Associates at 513.530.9000 if you have any questions.