MONEY SMART KIDS Saving Summer Earnings by Janet Bodnar
My son has his first summer job, but the way he spends his money, I'm afraid he's not going to have much to show for it. He says he earned it so he can do what he wants with it, and I guess he has a point. But is there some way I can use this as a learning experience?
Don't be shy about speaking up. Even though your son is earning the money, you actually have both a legal right and a parental obligation to have a say in what he does with it.
For starters, take the opportunity to teach him about taxes. My youngest child, Peter, is also earning his first salary this summer, and we had a little chat before he got paid about how much Uncle Sam would take. Still, when Peter got his first check, he was a little dismayed to learn that of the $39 that had been withheld, he would only get back about $17 in federal and state taxes as a refund. The $22 taken out for social security and medicare was gone for good.
Before your son fritters away all his money, lay down some rules about how much you'd like him to save, and for what. Depending on how much he makes, it's not unreasonable for him to be saving as much as half his income for college. Or you could give him a smaller, short-term goal, such as a school trip. Offer to match his savings as an incentive.
Now is also a good time to help him open a checking account, so he can deposit and withdraw his own money and keep a record of his transactions. Learning to balance a checking account is a key financial skill kids need to learn before they leave home.
And give your son a head start on saving for retirement by opening a Roth IRA. A child can have his or her own Roth as soon as he or she has earnings from a job (investment income doesn't count). The dollar limit on annual deposits is the same for kids as it is for adults: a maximum of $3,000 a year or 100% of earned income, whichever is less.
True, saving for retirement won't be at the top of your son's to-do list. But his money doesn't have to go into the account. You can provide the cash (as long as it doesn't exceed his total earnings for the year).
GETTING STARTED
