Can you imagine a summer in which your teenager rises before noon, carries a brown-bag lunch to work and dutifully deposits a big chunk of each paycheck into savings?
Wouldn’t it be great if your employed teenager dipped into his own cash for movies, gas and dinner rather than using your dime?
I’m a funny woman, right?
But the reality is usually that high school and college students spend their hard-earned summer job money on $4 lattes, fast-food meals galore, and paychecks that get blown on iPods and cell phones. Not much thought about banking any of the money.
It drives me crazy to see teens spending money like water and having little or nothing to show in their bank account after working all summer long.
Never mind that a $4 caramel mocha ice coffee is HALF of an hour’s pay!
If you have teenagers heading for the work force this summer, like my 16 year old daughter Rachel, do them a big favor before they burn through their paychecks by covering the financial bases, especially in these three areas:
1) Pay yourself first
This is the easiest savings habit of all.
If your child’s employer offers an automatic payroll savings plan that deducts money from paychecks directly, take advantage of it. It’s an easy way to save because you never see the money in the first place. On the other hand, if you wait to pay yourself last, you may never see it.
So how much should be socked away?
This is the time to talk about goals. Is your son or daughter working to save money for college? A car?
My husband and I expect our kids to save HALF of any money they earn, but at a minimum, they should be able to sock away 10% of their take-home pay. After all, your kids have NO bills, right?
Rather than depositing paychecks into a basic savings account that will earn pennies each month, why not get open a cash-management account at a financial institution where money gets swept into a higher-yielding money market fund?
Check out www.millionaire-kids.com/moneymarketaccounts.html for the best rates…
Some young workers may even qualify for benefits such as shares in the company’s stock or participation in its 401(k) retirement, especially if the job extends beyond the summer.
This is a great opportunity for them to learn about investments and the stock market.
With my own kids, I have them stash their cash in a money market account until it reaches $250 dollars, and then we move it into a mutual fund for long term investing.
There are 3 criteria I use when choosing a mutual fund:
!) The fund has to be a value fund (these are really good companies at bargain prices)
2) The 10 or 15 year average annual yield of the fund has to be 12% or better (the 50 year average of the stock market is 13.3%)
3) It has to be a no-load fund or fees of no more than 1.5%
Remember, developing a savings habit while young is SO important to be able to take advantage of the power of compounding — where your money grows as the interest earns interest.
2) Rein in spending
Building up the bank account does not necessarily depend on how much you make, but how much money you’re able to “hang on” to.
That’s the message to repeat over and over to your 15-year-old earning just above the minimum wage at the swimming pool snack-bar counter.
Talk to your son or daughter about setting spending limits. This does not mean turning them into a total tightwad, but go over the implications of spending money daily on lattes instead of pouring a cup of coffee at home, or going out to lunch instead of brown-bagging it.
It may not seem like much, but all those $2 and $3 dollar items add up fast — money that could be better spent on college textbooks or funding a Roth IRA.
Finally, don’t carry around loads of cash. The more you have, the more you spend — or lose, which brings me to my third topic.
3) Control your ID
Getting a summer job means it’s time to open up a checking account and possibly getting a debit card as well.
Make sure that your child’s personal identification is protected, that checkbooks, for example, aren’t left on a front seat in the car or even the glove box. That’s a tempting target.
As for debit cards, keep control of personal identification numbers. Don’t carry the PIN in a purse or wallet, either.
Even if your child’s brain cells have been tested to the max in calculus class during the school year, committing four numbers to memory should be easy.
Teenagers are lean, money-making machines…so help them get into the habit of saving some of that cash this summer!
And if you want to know how a high school senior from Eagan made enough money to buy himself a spanking new pick-up with a summer job – then sign up for my FREE ezine at www.millionaire-kids.com/ezine.html!
Sonja
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