Managing Teen Income

How is your high school junior spending the summer? If they're hoping to make some money, it might be time to introduce them to some basic financial realities.

Teens with after-school or summer jobs may be handling larger sums of money than they have ever had on a regular weekly basis, especially if this is their first real work experience. Most have their "want lists" well established before they even begin working.

Unfortunately, it's not uncommon for teens' spending to increase so much when they start working that they actually don't see any profits from their job -- and they can even end up in debt.

Where Does All the Money Go?

Teens may not realize that working can bring an extra set of expenses. These costs can vary. Some jobs may require a "working wardrobe," for example. Transportation costs add up, especially with the high price of gas today. Buying a lunch or snack every day on the job can also be expensive.

Teens working retail may take advantage of their employee discount a few too many times, or they may spend their breaks making unplanned purchases in nearby stores.

In addition, many teens are shocked to discover that they may have money deducted from their check for taxes or health insurance. Even the minimum wage can seem like a lot to kids who have not worked before. Few teens realize that at least one-fourth of their wages will go to taxes and other withholding.

Teens also generally underestimate continuing costs for the things they want, such as monthly cell phone provider fees or ongoing car maintenance, gas and insurance.

Planning Ahead

Unfortunately, impulse and credit buying comes naturally to teens reared in today's instant gratification culture.

Talking to teens about economic realities and helping them to set financial goals are important parental obligations when kids begin to work outside the home.

They need to be taught sound consumer habits. Consumer research is an important financial survival skill and necessary for most people before purchasing large ticket items.

A good paper and pencil planning session can have a very positive impact on a financially naive teenager. It doesn't take long to arrive at realistic income, spending and saving projections -- especially if the meeting is accompanied by some consumer research.

Developing a financial plan that includes projected earnings, spending and saving goals can get a teen started on the road to financial security.

Developing a Plan

1. Sit down with your child and discuss establishing a financial plan to help them reach goals.
   
   
2. Begin by estimating their total anticipated net income. They can multiply the hours they expect to work by their hourly wage, and then subtract the anticipated deductions.
   
   
3. Estimate the amount of money they will need for big-ticket items (like college savings, travel or automobiles) and routine expenses (snacks, movies and transportation, for example).
   
   
4. Encourage your teen to come up with a financial management strategy that suits their income and perceived needs, but resist the urge to direct the process yourself. Your teen might want to calculate how much they should be setting aside for long-term savings out of each pay check. They could also do a little research on the best way to manage those savings by looking at different banking options.
   
   
5. Ask thought-provoking questions and make suggestions by stating alternatives from which your teen can choose.
   
   
6. Take the opportunity to refer your teen to Internet resources for consumer research when appropriate or necessary
   
   
7. Consider opening a checking account with a debit card option to help them manage their weekly expense money. Find out if your bank offers low- or no-fee youth or student account options. Having the checks and debit card will allow students to shop for exceptional values on the Internet or by mail order.