After years of summers spent in camp or just hanging around the neighborhood, your teenager just got his first summer job—and his first paycheck.
“Hallelujah!!,” you think. “Is it too soon to start talking Roth IRAs?”
Your teen, meanwhile, is just as excited, but for entirely different reasons: “Shopping spree!,” he thinks. Who wants to join?
What’s a parent to do? Here’s what experts recommend when it comes to helping teenagers learn to manage summer earnings:
That First Paycheck: Managing Summer Money For Teens
1. Talk about it.
Start with a conversation about the real world, financial experts say. Summer jobs are a training ground for full-time employment, when your teen will be responsible for big-ticket expenses like car payments, insurance, and groceries.
“It’s great for teenagers to make their own decisions about money because in a few years they’ll be an adult and in full control of their bank account,” says Paula Pant, a personal finance writer and owner of the financial advice site AffordAnything.com. “But that means it’s important for teenagers to start understanding budgets.”
2. Ask your teenager to start contributing.
You can start, experts say, by asking your teen to cover some of his or her extraneous expenses, at least for the summer. That could include gasoline, clothing, or entertainment. “Anything that is not a basic necessity is absolutely fair to ask a teen to pay for,” says Pant.
But these conversations need to begin before that first paycheck is in hand. That way you can avoid setting unrealistic expectations.
“If nothing is stated or talked about, the teen might assume, for instance, that mom or dad is going to pay for the cost of their prom dress,” Pant says. “Then a problem comes in, if a month before prom, mom or dad breaks the news that they’re not going to pay for it. That’s not very fair to the teen because it hasn’t allowed her adequate time to come up with a contingency plan.”
3. Don’t forget to encourage saving.
Saving—another important skill for teenagers to learn—takes time. “Your teenager is probably making minimum wage—or just over it—and if they’re trying to pay for something that costs $500, they need to put in a lot of hours to save up for it, even if they are great planners already,” Pant says.
These real-world exercises can start even before your teen gets a job. “When our kids reached 14, we figured out how much money we spent on them each month and put it in a checking account for them to manage,” says Dave Ramsey, a personal money-management expert and host of the nationally syndicated radio program, The Dave Ramsey Show. “We had them pay for all of their expenses themselves out of that account, which helped them understand how to budget and manage their money.”
With your help, your teen—hopefully—will make smart financial decisions about his paycheck. But if he decides instead to embark on that shopping spree—well, look at it as a learning experience.
“It’s far better for a teen to make a bad decision at age 16 or 17, when they’re under your roof and the consequences are not very dire,” says Pant. “If they don’t get that freedom to mess up now, then they are more at risk to make bad financial decisions at 35, when the decisions have much more expensive consequences.”
Plus that $400 fuzzy, pink, animal-print jacket can always be returned.