WHEN I WAS GROWING up, my mother thought the best way to relieve my boredom during summer vacations was to get a job. She was a valued employee at a local business and she knew the firm was hiring.
I asked if part of the job was to calculate change for customers when they made a purchase. That terrified me. My mother said she wasn’t sure, but that I’d learn to do it if it was required. The thrill of having money to spend outweighed my fear of making change. I took the job and survived the cash register.
That got me thinking about today’s teens taking their first jobs. I read that jobs are plentiful this summer, and there may even be a signing bonus. If they get a job in retail, kids won’t have to calculate change, either. The computer will do it for them.
On top of that, they’ll have other advantages. For starters, they’re unlikely to owe federal income taxes on their summer wages. A dependent child can earn up to $12,950 and pay no federal income taxes in 2022. Social Security and Medicare taxes must typically be paid, however. Seeing those deductions will teach teens a little about the taxes all workers pay.
Fidelity Investments reports that teens know they need to have financial goals. Saving comes up as teens’ No. 2 goal—right after getting a well-paying job. Yet less than half of teens have any savings at all, according to Fidelity’s research.
When saving, a teen might be tempted to take the TikTok money challenge, which involves saving cash in a liquor bottle. The TikTok challenge offers the sense of community and accountability that financial planners say can encourage saving. The idea: Don’t crack open the bottle until it’s full. The liquor bottle challenge, however, does nothing to address inflation. That’s another concept kids need to understand today—that a stash of cash will lose value as consumer prices rise.
With help and encouragement from a parent, relative or family friend, teens might stash some of their summer earnings in an investment account. The gold standard would be a Roth IRA. A Roth account could grow tax-free for life—provided, of course, that they don’t withdraw their earnings before age 59½.
They’d likely need help picking suitable investments. Some good candidates include stock index funds or individual stocks that have a record of paying steadily rising dividends. For non-Roth money, risk-averse teens might try Series I savings bonds.
Teaching children to invest can give them a huge headstart in life. Fidelity makes this easy by offering a youth account for kids ages 13 to 17. It encourages the teen to save, invest and spend with parental oversight, providing hands-on experience along the way. To participate, a parent must be a Fidelity account holder.
As an added incentive for kids, the Fidelity account includes a free debit card with no fees or required minimum balance. There’s also a mobile app linked to Venmo and PayPal. I love the site’s education component.
Since only 27% of young adults understand basic financial concepts—and less than a fifth of teachers say they feel competent to teach personal finance—a financial account like this could be a valuable addition to their education. I also wonder whether some parents might gain a wealth of information—pun intended—as they work with their children.
