Your child is now in high school and your years of teaching them about money management are becoming fewer. Hopefully by now you have been managing your teen’s spending habits with a consistent allowance, their own savings account, and you have exposed them to bill paying and your family budget. Here are a few more action steps to take with your teen child on their road to financial independence.
The purpose of your teen's first job is not just to gain experience and earn money; it's just as important to learn how to handle that income. New clothes, video games, and tech gadgets are popular, but these purchases must be managed. Earned income from part-time jobs might be subject to withholdings for FICA and federal and/or state income taxes. Show your children how this takes a bite out of their paychecks and reduces the amount they have left over for their own use.
If you haven’t already, help your teen open a checking account at a local bank or online. Most banks and credit unions offer special plans for teens. Typically, the parent is the co-owner with full access to the account, much like a joint account. For example, Wells Fargo's Teen Checking accounts give parents full access to alerts, parental controls and their child's accounts. Chase also offers jointly owned High School Checking accounts.
Teens will have more expenses, and their extra income should be used to cover at least some of their expenses. To ensure that they'll have enough to make ends meet, help them prepare a budget each month. Build on the concept of money to spend now, money to put towards something they can’t afford yet, and money to give to your church or a local charity. Here are few examples of budgets for teens from Family Education, Dave Ramsey, and MoneyAndStuff.
Teenagers should be saving for larger goals (e.g., a new computer or a car) and longer-term goals (e.g., college, an apartment). And while bank accounts may still be the primary savings vehicles for them, you will want to introduce your teenagers to the principles of investing. To do this, open investment accounts for them. (If they're minors, these must be custodial accounts.) Look for accounts that can be opened with low initial contributions at institutions that supply educational materials about basic investment terms and concepts. Helping teens learn about topics such as risk tolerance, time horizons, market volatility, and asset diversification may predispose them to take charge of their financial future. Have your teen check out TeenVestor, a website for young investors.
Though it might seem appropriate to give your teen (especially those about to go off to college) a credit card, I would strongly discourage you. Credit card companies cannot issue cards to anyone under 21 unless they can show proof they can repay the debt themselves, or unless an adult cosigns the credit card agreement. If you cosign you're taking on legal liability for the debt, and the debt will appear on your credit report. Let your teen wait until they are able to open a credit card by themselves and have the financial means to cover all of their expenses. If you want to introduce your teen to the concept of credit cards, you can start off with a prepaid spending card or a debit card.
Do you have young children? Read my blog on the Patch entitled “.” Do you have middle school age children? Read my latest blog on the Patch entitled “.”
Adam Obrecht, CFP® is the owner and founder of AO Wealth Advisory in Waukee, Iowa. His life passion is helping individuals, families and businesses maximize what they earn, invest wisely, and give generously to their family, charities, and community. Adam is on Facebook and Linked-In. Adam lives in Urbandale with his wife and two boys.
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