Summer job savings for kids
Is your teen planning on working this summer? FOX 4’s financial expert Kathy Stepp has tips on teaching your child how to manage and save their income.
Kathy Stepp’s tips:
If you teen or preteen will earn money this summer, there are some things you can do to enhance the experience as a learning tool. In addition to the benefits of learning responsibility and building character, your child has the opportunity to learn some valuable life-long financial lessons.
Begin by having a money talk with your child. Discuss the responsibility of paying taxes and saving a portion of the earnings-either for short-term purposes such as a large purchase or an upcoming vacation or for a long-term purpose such as “a rainy day.” Set a savings goal, such as 50 percent of the earned income.
Open a bank account for your child. The account will be used for the short-term savings portion of the earnings and as a starting point for any long-term savings.
If you use a software product at home to track your household expenses, teach your child to use it for his/her own expenses. Alternatively, set up a simple spreadsheet of earnings, savings and expenses for your child to use.
You, the parent, can establish an IRA for your child and fund it yourself if he/she earns taxable income. There is no requirement that the actual contributions to an IRA come from the wage earner. However, the amount of the contribution is limited to the amount of taxable earnings in a year or $5,500, whichever is less.
Have regular and ongoing discussions with your child as the summer progresses. Make sure he/she is managing the spending and savings plan as anticipated. And, most importantly, practice what you preach!
If you have a question for Kathy, email her at firstname.lastname@example.org.