Your teen is becoming more independent, but still needs plenty of advice from you. With more money to spend and more opportunities to spend it, your teen can easily get into financial trouble. With your help, your teen will soon develop the self-confidence and skills he or she needs to successfully manage money in the real world.
Lesson 1: Handling Earnings from a Job
Here are some things you might want to discuss with your teen when he or she begins working:
- Agree on what your child's pay should be used for. Helping with car insurance or clothing expenses, or do you want your teen to earmark a portion of each paycheck for college?
- Talk to your teen about taxes. Show your child how FICA taxes and regular income taxes can take a bite out of his or her take-home pay.
- Introduce your teen to the concept of paying yourself first. Encourage your teen to deposit a portion of every paycheck in a savings account before spending any of it.
Lesson 2: Developing a Budget
Your goal is to teach your teen how to achieve a balance between money coming in and money going out.
To develop a spending plan:
- Start by listing out all sources of your teen’s regular income (e.g., allowance or earnings from a part-time job).
- Brainstorm a list of regular expenses (don't include anything you normally pay for).
- Subtract your teen's expenses from his or her income.
If the result shows that your teen won't have enough income to meet his or her expenses, you'll need to help your teen come up with a plan for making up the shortfall. Your teen will inevitably make some spending mistakes along the way and they should know that he or she can always come to you for information, support, and advice.
Lesson 3: Saving for the Future
Help your teen focus on saving for larger goals such as a new computer or a car and longer-term goals such as college. Here are some ways you can encourage your teen to save for the future:
- Have your teen put savings goals in writing to make them more concrete.
- Motivate them by offering to match what he or she saves towards a long-term goal. For every dollar your child sets aside for college, you might contribute 50 cents or 1 dollar.
- Praise your teen for showing responsibility when he or she reaches a financial goal.
- Open up a savings account for your child if you haven't already done so.
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