Whether it’s their first paycheck ever, they’re only working short hours on weekends or working every day, the newfound excitement of having cash is something your teenager will remember for the rest of their life!
Today, we’re helping you through some of the most crucial money conversations to have when your teenager receives their first paycheck.
Remember your first job.
Before you dive into a conversation with your teen, remember what your first job was like. Do you remember how old you were? What responsibilities did you have? How much were you making each pay period?
Thinking back on your experience may help you recall some of the questions you had and the emotions you were feeling then – which in turn will help you empathize with your teen. It’ll also spark other valuable topics that relate to your family’s dynamic.
Conversation #1: Setting up a banking system.
Unless this isn’t your teen’s first paycheck, they just had money here and there to use.
A steady job brings consistent income, which needs a stable method for receiving and organizing that income. Now is the best time to set up a savings and checking account. Start with the basics:
How do they deposit money into the account? How and when is the money used from the account? And where can they set aside money safely and
- Open a checking account: Most paychecks today are paid by direct deposit, so a checking account is a necessity to hold their money until they intend to spend it. If the plan is to manually deposit salary, you’ll want to set up a schedule for heading to the credit union to do so.
- Open a savings account: Savings accounts are the safest place (NCUA-insured) for them to save money – or at least put it where it’s not going to be spent soon. If you’re looking for a high-earning savings account that’s right for you and your teen, we’d love to help you find the right one for you. Let’s find a place where your money can grow.
- Automatic transfers between accounts: You’ll want to make saving money (and covering checking account shortage accidents) easy by having your teen link their two accounts together. Accidents happen when you’re new to dealing with your own funds. Automatic savings transfers build healthy habits. Your teen has nothing but time on their side by growing their savings as soon as they begin working.
- Discuss the differences in ways to pay: Your teen should be fluent in the different methods of spending money (but, hopefully, they won’t spend all of it!). This means being transparent about the difference between writing checks, paying with a debit card, or using a credit card. There’s value in equipping your teen with clarity and understanding – it often prevents overspending and other major money mishaps.
- Use a transaction they’re making and walk them through the three different ways they can make it, pointing out the pros and cons of each method.
Conversation #2: Taxes
Your teen will likely need to file taxes by the April deadline, and pay them. Filing taxes as a teen can feel really intimidating – reassure them that you’ll guide them through it!
- Filing taxes each year: They’ll (likely) file taxes by the deadline each year. Whether they need to file taxes depends on the source and amount of income. They’ll also receive a W-2 or other tax documents from their employer.
- Here’s a guide by ConsumerFinance.gov on teen taxes.
Conversation #3: How Much Should your teen Save?
Not only should your teen figure out how much they should save from each paycheck, but you should also help them define their first savings goal.
Now’s the time, while your child has actual money coming through the door, on a semi-consistent basis, to teach them the value of setting a savings goal and creating a plan to achieve it.
To set a savings goal:
- Talk out their goals: Ask them what they would like to achieve or explore – and support them when those goals change!
- Help them prioritize one savings goal: Your teen probably wants many things – I know I do! Help them decide on a S.M.A.R.T. goal.
- Save with them. Become an accountability partner, and take this opportunity to make them yours, too! It’s way more engaging and exciting to accomplish goals together – and way more productive, too!
Conversation #4: Define Money Responsibilities
If your teen has no current financial responsibilities at home, is this going to change when they get their first paycheck? Are they going to be responsible for paying anything? This is totally unique to your family dynamic. You and your teen may not be ready to completely shift buying responsibilities to them – they are new to the money game, after all!
But you may decide to introduce money responsibility by handing a category of spending over to them. Should your teen take responsibility for purchasing pet food when it runs out? Or they begin chipping in some for groceries. Again, this decision should be made together that is right for your family.
Conversation #5: Allowance Shifts
Are allowance or chore payments going to shift now that your teen has their own income? Will you continue giving them the same amount as before? Do you scale back? Does the amount they earn need to now go into a college savings fund? Lots of questions to think through – and the answers are really unique to your home!
Conversation #6: Setting them with the foresight to be successful.
The first paycheck is the perfect opportunity to show them the advantage they have to be saving so early. Setting up future generations for success with foresight and discipline is our responsibility as their parents/mentors/teachers.
Help them understand what saving 30%, 20%, or even 10% of their paycheck could grow to in 5, 10, and 20 years. Sit down with them when they receive their paycheck, and plug in the numbers using this calculator. It always helps to have visuals, and this calculator is the perfect way to see the magic behind saving for the future.
Conversation #7: Give them Your Paycheck Expectations
Sit down together after the first paycheck is earned, and determine what percentage is appropriate to spend, and what percentage is necessary for them to save.
What goals do you have for them, and what goals do they have for themselves? Being transparent and creative together about their goals not only creates a moment for you to understand your teen’s dreams, but it also builds their confidence to reach those goals, knowing you’re right beside them every step of the way!
Which conversation are you looking forward to? Which conversation are you hoping to put off? There’s no shame – parenting doesn’t come with a manual!
Our friends at Greenpath are ready to help with any of your financial concerns or questions. Greenpath is available by phone M-Thurs 8 a.m. to 10 p.m. (E.T.), Fri 8 a.m. to 7 p.m., Sat. from 9 a.m. to 6 p.m at 1-877-337-3399 or on the web at https://www.greenpath.com/contact-us/.