$ummer$mart$Money Money Management for Teens

If there is a teenager in your household planning to get a first job this summer, they are probably grinning at the thought of receiving that first check and having some money of their own. Getting a first job is a true rite of passage–and there’s no better time than the summer! Students get the opportunity to learn new skills, challenge themselves, and of course, earn some. As it’s commonly said, “More money, more problems,” but is that really true? Chesapeake Family Life talked with several personal finance experts to learn the best things young people can do to be smart with their summer money.

Paying Yourself First

Matthew Zentner, an Associate Financial Representative at Modern Woodmen of America, said he recommends individuals get into the habit of “saving at least 10% of their income.”

Zentner explained the concept as “paying yourself first.” By this, he means that teens should try to set aside the amount they want to save first–and then use whatever is left over as their fun money. This sets “a good foundation” Zentner said, as teens begin taking on more responsibilities, and eventually, handle larger sums of money.

But where should you put this money? Matthew Sordi, a High Networth Associate at Fidelity, said it’s smart for teenagers to put it into a savings account, and there’s no shortage of options available. “A lot of firms offer accounts where teenagers can learn how to save and invest, and you can opt for a debit card that is linked to a parent or guardian,” Sordi explained. Once you turn 18, the joint status can be adjusted to only allow the young adult to withdraw or make purchases.

Zenter said that even when you are first starting, it’s “important to have goals…it’s important to know what your priorities are.” Whether the goal is to buy your prom outfit or save up for your first apartment, the first step to success is simply starting.

Reaching Your Goals, Both Big and Small

Zenter and Sordi both said that it’s important to understand the cost of goals you have.

“This allows you to work backward,” Sordi explained. He spelled it out with some simple math, “Let’s say you want to save $200 for a trip with your friends in two months–you’ll want to see how much you’re earning each paycheck and…see if you can set aside a portion of the amount each [time].” For that example, a teen should try to save about $25 a week from their job over two months.

For really big goals, like saving for an apartment or college, it might take more time. Even so, that shouldn’t stop young people from getting started, “Something is better than nothing, and sooner is better than later,” Zentner said.

Sordi suggested another option for big goals; custodial accounts allow parents to take the reins on investing and, once the teen is 18, all assets transfer fully into the teen’s hands. You can even start saving for retirement, and Sordi said, “It’s really never too early.”

Sordi’s biggest piece of advice? “No matter how big or small the goal is, keep going–don’t get frustrated.” With the right planning and effort, even the biggest of financial goals can become a reality.

Avoiding the Pitfalls

While it’s inevitable to make mistakes when starting your money management journey, Sordi and Zenter offer some advice to prevent teens from making expensive errors.

Sordi and Zentner said you have to be careful where you get your information.

“The internet can be very dangerous,” Zentner said, when it comes to financial advice. Sordi added, “Go to an accredited website, whether it’s a firm or investment company” to find accurate information.

While there are many options for money management, Sordi and Zentner both generally recommend putting money in a savings account, which is a foolproof way to make sure your money is safe.

Some teenagers might be curious about stocks and investing, but it’s important to be smart in this arena too. “Stocks can be a good thing if you know how to do it, whether it’s learning from a parent or an accredited website,” Sordi said, but it’s important to be aware that you risk losing money.

If you’re just getting started, it’s best to get well-acquainted with savings and checking accounts before looking into other options, unless you have someone with substantial experience to help you.

Sordi and Zentner remember vividly what it was like when they were teens, too. When you first start earning money, it’s easy to want to spend it as soon as you get the chance. While you should reward yourself for working hard, Zenter and Sordi emphasize that you shouldn’t lose sight of your financial goals.

While we all make mistakes when we first start handling money, students should take the time to improve their financial literacy early on. The sooner they start, the better off they’ll be.

Do teens have to pay taxes?

Everyone has to contribute to social security. That is 6.2% of income.

A minor who may be claimed as a dependent must file a return if their income exceeds their standard deduction ($12,950 for tax year 2022). A minor who earns less than $12,950 will not owe taxes but may choose to file a return to receive a refund of withheld earnings.

Do I need to file a tax return?

Minimum Income Threshold for filing tax return - online calculator irs.gov/help/ita/do-i-need-to-filea-tax-return

Paycheck Example

Part-time job working 5 hours a week and being paid $15 per hour.

5 hours/week at $15/hr =$75

Over 1 months = $300.00 minus social security - $18.60

$281.40 Leaves

Save at least 10% $28.14 $253.26 Leaves

Amount in saving over a year: $337.68

Amount to spend: $3.039.12