Helping Teens Manage Their Summer Earnings: Budgeting, Taxes, and Savings
Jun 13, 2024![Teach your teens financial responsibility this summer! Learn budgeting, taxes, and smart saving strategies to set them up for future success. Summer job, credit card education, summer program teens, personal finance for teens.](https://kajabi-storefronts-production.kajabi-cdn.com/kajabi-storefronts-production/file-uploads/blogs/2147504180/images/ccb787a-2a-12bc-e100-e2cc00446bac_f4f6c83f-458d-425d-8a98-c8289ce0120b.png)
Parents, grandparents, aunts/uncles, and teachers, it’s time to get real about teaching our teens some financial responsibility.
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Summer jobs aren’t just about keeping them busy; they’re prime opportunities to instill money smarts that’ll last a lifetime. Whether they're babysitting, mowing lawns, or working part-time, earning their own money is packed with lessons. Trust me, you can set up your kid's whole future from what you’ll learn here. Let's dive into how teens can manage their summer earnings with savvy budgeting, a clear understanding of taxes, and smart saving strategies.
Budgeting Basics: Your income is the foundation of your budget, and budgeting is the bedrock of building wealth and smashing your goals.
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1️⃣Step one for teens: List every single source of income.
2️⃣Step two: Categorize those expenses into three buckets: non-negotiables, recurring monthly expenses, and lifestyle expenses.
- Non-Negotiables: These are your essential(s) like phone and car payments or school supplies.
- Recurring Monthly Expenses: Think Netflix, gym memberships. This is also where savings goals live. The savings goal could be a drum set, car or retirement but it’s plainly written in this category.
- Lifestyle Expenses: Your discretionary money is going out with friends or buying beauty products at Sephora.
I’ve worked with over 300 clients, and one of the biggest habits created in childhood is the belief that all their income is discretionary. When they got their first full-time job, they spent their money as if someone else was subsidizing their life because that’s how it was when they were kids. By teaching teens to budget their money into categories, you show them that some money is meant for today, and some is meant for tomorrow.
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The goal here is simple: make sure expenses are less than income. By treating savings as a recurring expense, teens always look out for their future selves while enjoying the fruits of their labor today.
Understanding Taxes: Now, let’s tackle taxes.
When teens work as W-2 employees, their earnings are taken out for federal and state taxes. Here’s the kicker: withholding taxes isn’t the same as filing taxes. If they rake in more than $14,600 in 2024, they must file a federal tax return. Budgeting becomes crucial here because it helps keep track of every dollar earned and spent.
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Self-employed teens, listen up: whether you’re babysitting or mowing lawns, you need to know about self-employment tax. Earn $400 or more, and you will have to pay this tax. But here’s a silver lining: paying taxes means you can start contributing to a Roth IRA. For example, if a 15-year-old invests $7,500 in a Roth IRA and leaves it alone, by 30, it could be over $23,000. By 70? We’re talking $750,000 with an average 8% return. Not too shabby, right?
Let that sink in. (Image below for true impact)
Let’s bring this to life with a scenario.
Imagine Sally earns $500 a month from babysitting. First, she should set aside 20% for taxes because she’s self-employed. Then, she needs to jot down all her expenses and categorize them.
- Non-Negotiables: $20 for her cell phone
- Recurring Expenses: $50 for a gym membership
- Lifestyle Expenses: $30 for outings with friends and $40 for skincare
Sally totals up these expenses and subtracts them from her post-tax income. In this example, she has $260 left over. That’s a golden opportunity. Sally can put that money into a high-yield savings account or even start a Roth IRA. Both options will grow her money, helping her reach both short-term and long-term goals.
Sign up for the Personal Finance Teen Summer Program waitlist!
There is no sooner time to teach your kid about good money habits. One of the most misunderstood resources of our time is how to use a credit card properly. Using a credit card responsibly can help them establish a strong credit history early on and rack up those reward points! Interested in diving deeper? Our summer intensive for teens with summer jobs is just what they need. This program offers a step-by-step guide to building healthy money habits today and securing a financially successful future. Join our waitlist to get all the details!
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