Teach Your Kids How to Create a Budget This Summer
Teaching your kids how to create a budget is one of the most valuable skills you can impart in the years before they leave home. In a typical summer, close to 20 million young people age 16 to 24 are employed. That first real job requires motivation and responsibility, and an employer gives young people a taste of what the real world is like in terms of expectations and feedback.
It's an important milestone for your family when your teen gets her first job. Help her make the most of it by teaching her how to create a budget, and she's more likely to learn valuable life lessons on what it means to be a responsible adult.
Budgeting Fundamentals for Teens
Teens are notorious for entire paychecks on things like clothes, games, movies, and other small luxuries. While you don't want to ruin all their fun, helping teens learn to budget benefits them (and you) short term and long term. And if your child is practically glued to his phone 24/7, you can help him set up a budgeting app like Mint.com that lets him track spending and savings quickly and conveniently.
You can teach your child how to create a budget with paper, a pen, and a calculator. Explain that part of her wages will be automatically taken out of her paycheck for payroll taxes. Take a typical week's pay for your teen's job and show her how easy it is to go through every dime of it very quickly unless she learns to prioritize expenses and separate wants from needs.
Make it clear to your teen which expenses you expect him to cover. If you expect him to buy the gas to get to and from work, say so and estimate that expense for a typical week. If he is expected to buy his own school clothes, show him how to comparison shop for the best prices. If he will be paying for his own lunches during his summer job, show him how quickly the cost of fast food adds up.
Introduce your teen to a budgeting app like Mint.com that she can use on a computer or her phone. Help her link the app to her bank account so she can always check how much money she has and track where every dollar goes. Mint.com lets users create line items that are relevant. Your teen could, for example, set a savings goal toward college costs, and the app will track her progress toward that goal.
Taxes and Your Teen's Summer Job
When your child gets his first job make sure he knows that he will almost certainly have to file taxes at the end of the year, and advise him on the options for preparing a return, from software to manually, to working with a tax preparation service. He will have to fill out a W-4 form from his employer. If he's only working part-time, or only working for the summer, he's usually better off claiming no exemptions on his W-4 to ensure enough taxes are withheld from his paychecks.
You will still be able to claim your child as a dependent on your tax return as long as the child doesn't pay for more than half of her own support. If your child is under 17 and you can claim her as a dependent, you can still usually claim the Child Tax Credit on your return. If your state has an income tax, make sure your teen knows she'll have to file a state tax return in addition to her federal tax return.
Budgeting Lessons and Life Lessons
Learning how to create a budget helps kids learn the difference between needs and wants, and can help them avoid regrettable impulse purchases. Furthermore, teaching kids how to create a budget helps them learn other important life skills, like how to budget time. Knowing how to prioritize and allot finite resources helps kids learn to budget study time, time for extracurricular activities, and the like, and will be very beneficial in college and beyond.
Most teens use their summer jobs as a source of "mad money" since they don't usually have to contribute to most household expenses. But that doesn't mean your teen shouldn't bother learning how to create a budget. Even if your child has plenty of discretion over how paychecks are spent, learning how to prioritize spending and work with a set amount of money is empowering and is great preparation for facing the responsibilities of adulthood.
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