Even if they’ve received an allowance every month in return for doing household chores, the teen years are when many kids begin to earn money by doing ‘real’ jobs. Their first paychecks can be a valid source of pride—but also a temptation to spend.
This is the time to help your teen establish good money habits, financial advisors say. Money editors at The Motley Fool suggest four things parents should address:
Creating a budget. It’s important to know how much money is coming in, how much will be spent—and on what—and how much will be saved. Parents can share their own budgets, if they wish, or create an imagined scenario including those components. It’s a good way for kids to learn the connection between working, spending, and building wealth.
Real life has costs. Budgeting may help teens track where their money is going, but they should understand that real life has real life costs. If your teen has recently earned a driver’s license, for example, your insurance cost probably went up—which may mean making changes in your budget. Share that with your teens. You may or may not ask them to contribute, but it’s a good way for them to realize that life may carry unexpected costs.
How to read a paycheck. Show your kids how much is taken out of your paycheck for taxes, retirement, and health insurance, and the difference between gross and net income. It will help them realize, when they take those first ‘real’ jobs, that how much money they will have to spend out of each paycheck will be a lot less than they had figured.
The difference between ‘good’ and ‘bad’ debt. Teens should understand that money borrowed at a relatively low interest rate that helps you grow wealth over the long run, such as a student loan or a mortgage, is considered good debt. High-interest consumer debt, on the other hand—such as debt incurred for frivolous expenses or things you know you can’t afford—can bust your budget and become a crushing burden.