Summer jobs are often teens’ introduction to a paycheck, FICA shock and greater financial freedom. With more money at their disposal than ever before, it’s up to them whether they end the summer with money in the bank or in the same financial boat they started the season.
Here are some saving tips for teens:
* Find out where your money goes if one paycheck disappears before you get the next one.
Each time you make a purchase, consider whether it’s something you really need or just something you want and can resist the impulse to buy, said Diana DeCharles, a Louisiana financial planner.
Or take a more formal approach. Write down every purchase over the course of two weeks, said Stuart Heckman. He’s is in a better position than many to know about teens and finances; he’s 18 and for the second summer is interning at a Kansas financial planning firm.
“Once people see on paper where they’re putting their money, it’s a little bit easier to think of what other places they can put that money toward,” he said.
* Set a goal. Maybe it’s a car or college. It’s much easier to save when you have a target in mind, said Dirk Pantone, a Colorado financial planner.
Ohio planner Kenneth Robinson said the goal should be to save 10 percent of every paycheck before spending money on anything else. This way, teens will develop a habit of saving. By first putting 10 percent aside, people adjust their other spending so they live on 90 percent of pay. It’s better than creating a formal budget, which most people hate and few do, Robinson said.
* Make saving automatic. If your employer offers direct deposit, your paycheck can be automatically deposited into a savings account. “If you don’t have the money in your hand, it’s harder to spend it,” Heckman said.
Parents can encourage saving by matching what a teen sets aside, much the way a company matches employees’ 401(k) contributions, said Pantone. He gives a dollar for each dollar his three children save.
For a summer job, a savings account might suffice. But some teens might consider becoming a long-term investor.
Heckman’s advice: Invest in a Roth IRA. Earnings go into this individual retirement account after taxes. Workers decide how their money is invested. And when they retire, they can take the money out and never have to pay taxes on any investment gains.
Retirement is a long way off. But a Roth can be tapped for other occasions without penalty for an early withdrawal. For instance, up to $10,000 can be taken out to buy a first home.
Heckman opened a Roth. He suggests younger teens wait until they’re 18 to open one. That way, they avoid the paperwork hassle of setting up a custodial account as a minor and then having to change it later, he said.
Teen saving
For more advice for teens from their peers, go to the National Endowment for Financial Education’s Teen Resource Bureau at www.ntrbonline.org.
Teen saving
For more advice for teens from their peers, go to the National Endowment for Financial Education’s Teen Resource Bureau at www.ntrbonline.org.
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