As your teen receives their first paycheck from a summer job, it’s a significant milestone on their journey to adulthood. This moment marks the beginning of their financial independence, and how they manage these earnings is equally critical. Guiding your teen through the basics of banking and establishing healthy financial habits now can significantly influence their financial future. Here are several steps you can take with your teen to kick-start their money management skills:
Discuss Their Goals
Initiate a conversation with your teen about their financial goals. Some may wish to spend their money on social activities, while others might aim to save for a car or college. Many will likely want to balance both. It’s important to assist your teen in setting achievable financial targets and timelines. This is also an excellent opportunity to communicate your expectations regarding contributions to expenses such as gas, clothing, and phone bills.
Find the Right Savings Account
Teach your teen the valuable lesson of “paying yourself first.” Even small contributions to a savings account can prepare them for future emergencies or significant purchases. Depending on your teen’s age, banks offer specialized savings accounts with high interest rates to promote financial stability. While debit cards and checking accounts may be age-restricted, savings accounts are generally accessible to all ages. Explain the various saving options available, such as high-yield savings accounts or Certificates of Deposit (CDs).
Introduce Your Teen to Investing
While it might seem premature, it is crucial to introduce your teen to concepts like individual retirement accounts (IRAs), stocks, and 529 college savings plans. Educate them about responsible investing and the potential for their money to grow over time. This early introduction to investing can set the stage for a financially secure future for your teen. If your teen has earned income and is subject to taxation, they can even open a Roth IRA, giving them an early start on building personal wealth.
Make a Budget
Based on your teen’s financial objectives, now is an ideal time to create a budget to meet these goals and manage expenses. Begin by sharing the family budget to demonstrate how income is allocated to pay bills and save, prioritizing needs over wants. Using this as a template, your teen can develop their own budget, adjusting categories and determining how much to save or spend from each paycheck. Provide line-item examples and show them where each expense fits into the budget.
Open a Checking Account
Many banks offer accounts tailored for teens and younger customers. Typically, if your child is under 18, you will need to open a joint account with them. Opening a checking account is the first step in teaching your teen sound banking practices, such as regularly checking their balance to avoid overspending, using an ATM, and managing their income with a debit card and mobile banking apps. Banks generally require the following documents to open an account:
- Adult’s driver’s license
- Adult’s Social Security number
- Child’s Social Security number
- Child’s birth certificate
- Proof of address
By guiding your teen through these steps, you can help them build a strong foundation for their financial future and instill habits that will serve them well throughout their lives.
We extend our sincere gratitude to the Wisconsin Bankers Association and the Wisconsin Bankers Foundation for providing this valuable content. Their commitment to financial education helps equip the next generation with the knowledge and skills necessary for a secure and prosperous financial future. Thank you for your dedication to fostering financial literacy among our youth.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
