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Teaching teens to save
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May 28, 1998: 5:19 p.m. ET
Teens earn more than $100 billion each year, and need guidance on saving
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NEW YORK (Bank Rate Monitor) - Today's hard-working teenagers know how to make money and they know how to spend it -- fast.
Teens earned more than $100 billion in 1997 with summer and part-time jobs and they spent almost all of it.
"They know they have spender's disease," said Steven Sanders, president of a money management firm in Philadelphia and a spokesman for Citibank's Money Matters for Young Adults program.
"They say, 'I spend everything I earn,' and, 'Money burns a whole in my pocket.' They know what it is and they know it's a bad thing."
Budget is an ugly word
Sanders travels the country for Citibank teaching big-spending teens the basics of money management. He refuses to use the word "budget" because it sounds too restrictive. Instead, he teaches teens how to develop a spending plan and determine how they're going to spend 90 percent of what they earn.
He asks teens to make a list of all the things they want and to put a price tag on it.
"They treat their own hard earned money differently than the money they get from mom and dad," Sanders said. "So immediately some financial discipline sets in when they do this exercise."
He also teaches teens the difference between gross and net income. Otherwise their first paycheck, chock-full with deductions, can be a bummer.
"They want to know who Mr. FICA is," Sanders said.
Save a little, spend a little
Another tip for teenage big spenders: Save some of each and every paycheck and put it into a rainy day fund or invest it. He encourages teens to get acquainted with the stock market by creating a "phantom portfolio" and following their investment picks in the newspaper or online.
"Young people learn economics really well. They understand supply and demand," Sanders said. "They're more attuned to the concepts than they're given credit for."
Kids are growing up fast
And they're more concerned about their financial futures than most people realize.
One third of the high school students polled in a national survey by Louis Harris and Associates for Girls Inc. said they were "uncertain" or "worried" about their financial futures. And 78 percent of the students said they were worried about how they were going to pay for their education after high school.
"Young people aren't enjoying their childhoods as long. They are aware of the cost of things," said Arva Rice, program director of the economic literacy initiative for Girls Inc. "Young people are concerned about the future. They want to be prepared."
Sanders agreed. "They want to know more. They want to know how they can avoid the financial troubles that their parents, grandparents and even older siblings have suffered."
Free personal finance brochures targeted to teens like "Beach Blanket Budget: How to Manage Your Summer Salary," "Money Matters for Young Adults" and "Tax Facts for First-Time Filers" are available from Citibank by calling 1-800-669-2635.
Financial tips for parents and young adults also are available on the Girls Inc. website.
Begin by figuring "take-home pay" for the entire summer. Make sure your teen is aware of how deductions will affect actual income. Teenagers should realize what their net income for the summer will be so they can develop a realistic budget.
Discuss a savings objective to reach by the end of summer. The first component of a budget plan is savings. If your teen can identify a savings objective -- to have $500 by summer's end or enough money to pay for a football uniform or to save $1,000 toward college -- it's much easier to find ways to save.
It also builds self-confidence and belief in money management if a financial goal is reached. Encourage your teen to "pay yourself first" by putting aside a portion of every paycheck in an interest-bearing savings account.
Sit down and develop a spending plan. Encourage your teen to create a spending plan once their summer income, minus savings, is determined. It's important to emphasize that a spending plan should be flexible and can be revised as goals change
Help your teen identify "needs" and "wants." An important step in every spending plan is to identify "needs" (transportation to work, school supplies etc.) and "wants" (the latest footwear, an expensive gift for a friend).
The "needs" comprise your child's unavoidable expenses, while the "wants" should be treated as rewards for taking on the responsibility of a summer job.
Make the financial world accessible. Young adults should familiarize themselves with the financial sections of their local newspapers as a start. Encourage them to create an imaginary "stock portfolio" of companies that make products they like. Track the results together.
Anyone over the age of 14 should be prepared to deal with taxes. If a young adult earns more than $4,150, has unearned income of $650, or if combined earned and unearned income totals more than $650, then the law requires that he or she file a tax return.
| IF YOUR TEEN: |
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earns more than $4,150 |
Your teen must file a tax return
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has unearned income of $650
| has combined earned and unearned income of more than $650
| | has annual earnings of $4,150 or less |
Tax refund likely
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The good news is that if annual earnings are $4,150 or less (likely at that age) a refund may be coming.
Finally, remind your teen that a refund is money that he or she worked for, not a present from the government. Encourage them to save a portion of it or to have it directly deposited into a bank account.
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