Teach your teen paycheck savvy

By Linda Stern


(Money Magazine) -- Congrats! Your kid landed a summer job in this tight, tight economy.

Now, of course, he'll have that $7.25 an hour burning a hole in his pocket. That's where you step in: "Parents have a real opportunity to help teens learn to manage that first paycheck," says Mari Adam, a Boca Raton, Fla., financial adviser. "I can't think of a better learning experience." Share some solid financial strategies with your teen now, and your child may even have some cash left over come September.

How do you see your finances one year from now?
  • Investments up and job more secure
  • Investments up, but job shakier
  • Investments down, but job more secure
  • Investments down and job shakier

Have the tax talk

Better explain the harsh realities of gross vs. net before your teen gets any big ideas about what she'll spend her wages on. She may not yet understand that taxes will be withheld from every paycheck. So sit down with your child to go over that first pay stub, explaining how and why taxes are taken out, as well as the difference between income taxes (which most teens are likely to get back when they file tax returns) and FICA taxes (which they won't). "This will be a real shock to them," says Adam.

Take it to the bank

Help your kid open two bank accounts -- one savings, one checking. Spend time together comparing fees and rates online, looking specifically for a no-fee checking account meant for teenagers. You'll have to co-sign the accounts, but it's worth it so your kid can start learning to use an ATM card and keep his balance in the black. (Just don't forget to mention the exorbitant costs of using another bank's ATM.)

Your child may balk at an analog check register but might enjoy tracking expenses online via Mint.com. To motivate him, explain about the $30 overdraft fees the bank will rapidly bestow if he messes up budget calculations. And remind him that at minimum wage, it would take most of a day's work to recoup that expense.

Share the savings secret

Deferred gratification is an important lesson. Your teen may not be inspired to stash cash for retirement but may be swayed to the savings habit with a near-term goal, like an iPod Touch or a limo for homecoming. Help her do the math so that she'll know how much to set aside per paycheck to afford her prize by summer's end. Show her how to have that automatically transferred from checking to savings every pay period. As an incentive, offer to match your child's contributions.

Avoid micromanaging

Blowing that first paycheck on shoes that will be out of style before the next check arrives is a rite of passage, isn't it? It's also a "very good lesson," says Rob Gordon, a Coconut Grove, Fla., financial adviser. So let kids have space to make spending decisions, even if they'll end up with buyer's remorse.

There's nothing like having wasted your own hard- earned cash to make you more careful with your money next time.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.07%4.28%
15 yr fixed3.18%3.26%
5/1 ARM3.36%3.43%
30 yr refi4.05%4.21%
15 yr refi3.17%3.18%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,098.45 18.88 0.11%
Nasdaq 4,580.27 22.58 0.50%
S&P 500 2,003.37 6.63 0.33%
Treasuries 2.34 0.01 0.39%
Data as of 6:18am ET
Company Price Change % Change
Bank of America Corp... 16.09 0.08 0.50%
Apple Inc 102.50 0.25 0.24%
Intel Corp 34.92 0.27 0.78%
Facebook Inc 74.82 0.96 1.31%
General Electric Co 25.98 -0.03 -0.12%
Data as of Aug 29

Sections

The deal would value Vice at $2.5 billion. The online media company would also create content for the cable network, delivering a wider audience. More

Gas prices are falling to nearly $3 a gallon in some parts of South Carolina, and that will soon be common in much of the country. More

Netflix told the FCC that its speed on the Comcast network became so slow that customers began dropping their service. More

The Coolest Cooler is the most successful Kickstarter campaign in the site's history, raising $13.3 million from over 62,000 backers. More

Five CNNMoney readers share stories about saving that you can learn from: What they would do differently if they had another chance. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.