A first summer job for a teen often requires opening and managing their first bank account
Teens can learn the importance of saving up as well as the true cost of a splurge
Don’t forget to file a tax return if necessary
The time-honored tradition of a summer job can help teenagers get a better handle on money management and learn valuable skills that can help them build a solid financial foundation for the future.
“A summer job provides access to learning opportunities as teens get a pool of money they can control,” said Robert Siuty, senior financial consultant at TD Ameritrade. “Encourage them to make good choices now, and it can positively impact them for the future.”
Here are some of the money moves a teen can make—and some of the lessons that can be learned—from a summer job.
Set Up a Bank Account
Now’s a good time to help your teen learn about banking—as well as monitoring their money. Consider setting up a bank account for your teen. You’ll probably need to open a custodial or joint account because minors aren’t allowed to open bank accounts on their own.
“Teach your child about using direct deposit for their paychecks and show them how to monitor their account,” Siuty suggested. “With the banking apps available now, they can do it from their phone.”
Some teens may benefit when they connect their bank account to a personal finance app to help them see where their money is going. Seeing the categories can be beneficial for teens because it gets them used to thinking about how they spend their money.
Even with new tools, however, it’s important for teens to understand how to read a bank statement and reconcile their account. These skills can help teens develop a connection to their money and their spending—and potentially learn to make good choices down the road.
Create a Budget and Save Up for Purchases
Be clear about what your child is expected to pay for on their own. In many cases, trips with friends, entertainment, and some other items should be covered by your teen once they have a summer job. Talk about creating a budget and directing financial resources toward the things that matter.
“Now is a great time for teens to learn how to set goals for themselves,” Siuty commented. “Helping them learn to budget their money and save for things they want can help them establish good habits for the future.”
Siuty recommended helping your teen set up categories for spending and saving and distinguishing between short-term and long-term goals. This can also be a good time to help your teen find causes they care about and learn how to allocate some of their money toward charity.
“A summer job is a perfect way to show teens that they have some control over how they use their money and they can accomplish good,” Siuty pointed out. “Show them that a budget can help them stay on track and have an influence.”
Having that income stream can help a teen become more fully aware of the true cost of a splurge.
Start Investing, Including for Retirement
It’s never too early to start investing for retirement. In fact, the earlier your teen starts setting aside money, the more likely they are to build wealth for the future. Show them how setting aside a portion of their paycheck can mean bigger returns later.
“A Roth IRA allows for earnings to grow tax-free for retirement,” Siuty explained. “In 2021 a teen can contribute up to $6,000, but just remember that the contribution cannot exceed the amount of earned income the teen received in the year.”
Another consideration is to match your teen’s investing contributions. This will give them more money in a portfolio early on. Don’t forget to teach your teen about investing in a taxable account as well. Show your teen how their money can grow by letting them see their portfolio balance on a regular basis.
You’ll need to open a custodial account because teens can’t open their own accounts. Remember that once your child reaches the age of majority for the account, they will have access and control over the funds. Help them learn the basics of investing, including the importance of researching potential investments, so they’re more likely to make informed choices in the future.
Don’t Forget About Taxes
Double-check your teen’s income and the IRS website to see if your child should file a return. Even if your teen doesn’t owe money to the government, they might be eligible for a refund, especially if their employer withheld taxes. Run the numbers to find out what’s most beneficial and help your child with the return so they get used to it.
A summer job can be a great way for your teen to learn more about money and even increase the financial resources they have access to. In addition to helping your teen appreciate work, summer jobs can teach them valuable lessons about money management—including how to start investing. Take the time to help your child move forward, and the foundation of financial knowledge they build will benefit them for decades to come.
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Miranda Marquit is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.