My daughter turned 15 recently and decided that this Summer she would get a job as a lifeguard to earn money for a new phone. I must say, that made me a super proud dad. Not just the initiative to get hired, but setting a savings goal is something we talk about often. It’s nice to know she’s listening.
So after a few days of working, it was time for the first paycheck. Her excitement about her first paycheck faded a bit when she noticed the amount was a bit lower than she was expecting. Yes, this was her introduction to taxes.
My wife and I decided that this was a great teachable moment, so we explained the different taxes that come out of your paycheck and how next year in February or March she’ll have to file her taxes with the IRS. We told her that she will get a refund on some of the Federal Income tax, but not the Social Security or Medicare taxes paid.
Another thing my wife insisted on was that at least 10% of each paycheck be put into savings at the time of deposit. It’s a rule my wife & I live by and are trying to teach our daughter. She has been really good about keeping up with her student checking account and using the mobile app to check her balances before making any purchases. But if she wants that shiny new phone, she’ll have to save at least 10%, if not more.
The main point in all of this is that you need to have open communication with your teens about money. Once they start earning a paycheck, it gives them a greater appreciation for all you’ve done for them over the years and hopefully gives them a greater appreciation for money. Without any discussion about the subject, you’re relying on your teen to make wise decisions. As I wrote in a previous entry, those wise decisions did not come naturally to me and I had to learn the hard way.