As a parent, my goal is to ensure my kids are more financially savvy than I was at their age. While they may not be quite ready for their first summer jobs yet, it’s never too early to start preparing! To help, I reached out to financial expert Sarah Bennett, the author of “The Smart Money Guide: Empowering Kids to Handle Cash.” Here are her top eight insights on how teens can make the most of their earnings this summer.
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Clarify the Purpose of Their Earnings
“Before anything else, it’s crucial to understand what the money is for,” says Bennett. Is it for college savings? Charitable giving? Or perhaps saving for a car? Setting clear goals from the start will guide how they allocate their funds. -
Adopt the Spend-Save-Donate Approach
If your family is fortunate enough to have a little extra, consider splitting their earnings into three categories: saving, spending, and donating. This mirrors the “jar system” many families use for allowances, allowing teens to practice responsible money management. -
Empower Them with Spending Choices
Allowing teens to have a say in how they spend their “spending” portion is key. As long as their purchases aren’t on your family’s “no-no” list, let them decide what to buy. It’s a great way to foster independence and decision-making skills. -
Transition Responsibilities
Take this opportunity to transfer some financial responsibilities to them. For instance, they could allocate a portion of their summer earnings to cover clothing or transportation costs. This teaches valuable lessons in budgeting and self-management—skills they’ll need in adulthood and college. -
Embrace Mistakes as Learning Experiences
At this stage, mistakes are part of the learning process. “Money is for practice,” Bennett advises. Allow them to make errors while they’re still living at home so they can learn without serious consequences. -
Let Them Face the Consequences
If they run out of money for clothes, that’s a lesson in budgeting! No bailouts from Mom and Dad—this way, they learn to manage their funds wisely. -
Teach Them About Taxes
One of the first surprises for many teens is seeing how much their take-home pay actually is after taxes. Helping them understand the math now will set them up for success later, especially when they’re managing finances in their early twenties. -
Encourage Early Retirement Savings
“Thinking about retirement can be tough for teenagers,” says Bennett. However, starting an IRA at a young age can lead to significant financial benefits down the road. For instance, if they begin saving at 19, they could become a millionaire by the time they’re 67! If you can, consider matching their contributions to a Roth IRA as an added incentive.
In summary, I wish I had started an IRA when I was younger. But at the very least, we can implement a spend-save-donate policy in our household. And just to be clear, on our “banned items” list: anything that promotes bad habits, like cigarettes, or those sneaky scams like three-card monte!
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