Cash check into job

Into The Job Pool - teaching teenagers about managing finances - Brief Article

MONEY-SMARTKIDS | Your teen's FIRST SUMMER JOB gives you an opportunity to teach lifetime lessons.

EVERY YEAR I'm asked how kids should handle the money they earn from summer jobs, and this time I have a personal stake in the answer: My lifeguard son, John, 17, has taken his first plunge into the labor pool. John graciously agreed to be used as a guinea pig to test the advice I've given other families over the years. This wisdom has passed the real-world trial, and I'm sticking with it.

Decide with your child in advance how much money he or she will have to save. Even if they're earning minimum wage over the summer, kids will make more money than they can or should spend. Don't buy their argument that it's their money and they can do what they want with it. You have a right to weigh in.

John didn't have a problem with our rule that he save at least half his earnings. But, understandably, he wanted to know what he was saving for--a senior trip with his high school swim team, or college the following year. We agreed on the trip, because it's a more immediate, achievable goal.

Pay as little as possible in taxes. Teens with summer jobs aren't likely to earn enough to trigger an income-tax obligation from work alone, so minimize withholding. Kids shouldn't have to wait till next spring to get back money they won't owe.

The pool-management company that employs my son tells me that most kids claim zero withholding allowances. But even if they're dependents on their parents' return, they're still permitted one allowance as a single person with one job. Claim it. In John's case it will mean an extra $8 or so in his pocket every week--not insignificant for a kid who's making only $5.50 an hour. The pool company didn't offer the option of part-year withholding, which would have made an even bigger difference, but a larger employer might, so ask about it.

Set up a checking account for your child. I firmly believe that kids should know how to manage a cash account before they set off to college. The local branch of Bank of America where my husband and I have our account was more than willing to open one for John (the bank employee who helped us told John I was doing an "awesome" thing for him). While I also had to sign the application because John is under 18, the account will be his, with only his name on the checks and his picture on the Visa debit card.

I specifically requested the card so he could have the convenience of plastic without the risk of credit. Now he can deposit his paycheck at the ATM (the pool company doesn't offer direct deposit), withdraw cash (up to a maximum of $100 per day) and buy stuff at stores--within limits. The card came with its own register so he can record each transaction ("This is your best friend," the banker told him).

As preferred customers, my husband and I are entitled to an additional free checking account, so John won't have to pay any fees or maintain a minimum balance. If you run into trouble opening a checking account for your child locally, try USAA (800-531-2265), which will let you open a no-fee joint account with your child, with mail deposits or electronic transfers, ATM access and a debit card.

I suggested that John deposit his paycheck into his savings account (a psychological trick to encourage saving) and transfer money to his checking account as needed. But that wasn't possible because my husband, as custodian of the account, was the only one authorized to withdraw money. Since John will soon be 18 and is a responsible kid, we'll probably ask the bank to give him access now to the $1,000 or so in his savings account.

When we finally left the bank, I asked John if he understood everything that had been explained to him. "Sure," he said brightly. "I get free money from the bank machine." I trust that was a joke, son.

Explain everything. Don't assume kids know even the most basic financial information. When John came home from his first day of "entering the labor force," as he put it, he proudly announced he had made $33 for six hours of work. That's when we had a heart-to-heart about taxes and FICA. He also wanted to know if he could actually use his temporary checks ("How will they know it's my account?") and whether he could use the debit card just like a credit card.

On the ride home from the bank, we talked about bounced-check penalties, how he could earn a higher rate of interest with a certificate of deposit, and whether he should invest in stocks. When his eyes started to glaze over, I called the lesson quits.

Open a Roth IRA. We'll do this later in the year, after we know exactly how much John earned (for brokers and mutual fund companies that will open IRAs for minors, see "Rev Up Your IRA," July). But I did explain the benefits of long-term compounding, and John was sold on the idea of becoming a millionaire. "Why doesn't everyone do that?" he asked. Ah, youth. --Reporter: MATT POPOWSKY