Managing the money earned from summer jobs
A summer job is supposed to help teach teens the value of a dollar. But many high schoolers have learned another lesson — buy more stuff.
There’s nothing wrong with teens enjoying the fruits of their labor, but has their new-found purchasing power gotten too excessive?
For teens who work in retail, leisure and hospitality jobs, average earnings are up about 4% so far this summer compared with last year, according to a recent report from Challenger, Gray & Christmas that analyzed May and June data.
So with disposable income burning holes in teens’ pockets, how can parents help their kids manage the money they earn this summer?
Don’t hijack your kids’ income by demanding they sock all their money away — that’s unrealistic. But there’s nothing wrong with having some say in how their paycheck is spent or saved.
If you haven’t already, come up with a plan together with your teen on what’s a reasonable amount of money to pocket. Then the rest should go in the bank, to be saved for college or perhaps to pay for a car or car insurance. That could easily mean socking away at least half of their summer earnings.
Now’s also a good time to talk about taking advantage of a Roth IRA to start saving for retirement years down the road. Kids of any age can contribute an amount equal to the money they earned, up to a 2023 maximum of $6,500 annually. A parent or grandparent typically maintains control of the account.
Employment compensation, for example, includes money from babysitting, lawn mowing and other self-employment, along with working at an amusement park or a fast-food restaurant.
The Roth is such a good deal for kids, especially because they can withdraw some of the cash to help pay for college without penalty, although you will be on the hook for income taxes. Eligible education expenses include tuition, books, fees, and room and board.
Fidelity’s Roth IRA for kids, for example, has no minimum initial investment, no annual fees, and is open to any minor under the age of 18.
If your kids are into numbers, show them how much their retirement account will grow over time. There are plenty of online tools to check. That’s also a lesson on the beauty of compound interest.
Another effective way to promote thrift is to match every dollar your child is putting aside. This works with older kids, who may be saving up for a big-ticket item, like a car or a new phone.
You don’t have to bank with your incentive — even a job-well-done pat on the back may be sufficient.
Finally, a little bit of job etiquette is in order before your 16-year-old wraps up work for the summer and prepares to head back to school. Send your boss a thank you note for giving you a chance with a job.