If there’s one thing we all remember, it’s the euphoria of our first paycheck.
When you’re a teenager, even a small amount of money can seem like a windfall—especially if that windfall comes on a biweekly basis. Even after learning the harsh reality of taxes, that first paycheck meant we suddenly had more money than we knew what to do with.
A teenager’s first paycheck, however, is also a huge opportunity. With a regular income, it’s easier than ever for teens to start learning valuable lessons that will guide their outcomes throughout life.
Financial literacy is one key to a bright future, which is why parents should jump on the chance to instill the knowledge their teens need. But if you aren’t certain this is important, we’ve put together a guide on what teens should know before their first job and why.
Before we go any further, let’s define financial literacy.
Financial literacy is a person’s ability to understand and manage their own finances. This includes strategies like budgeting, debt or loan management, and investment. (You may also have heard the antonym, “financial illiteracy.”)
Through good personal financial literacy skills, people can also maintain high credit, manage home mortgages, or keep out of debt. At its core, financial literacy is what helps people manage their money effectively while avoiding pitfalls or financial strain.
Parents wear many hats around their kids. However, one of the most important roles they step into is that of a teacher. It’s up to parents to instill valuable life lessons in their kids, from hard skills like replacing a tire, to soft skills like listening during conversations.
However, financial literacy doesn’t always get the attention it deserves. This may be because it’s easy to imagine that kids will pick up financial best practices on the go. After all, experience is supposed to be the best teacher.
But because poor financial decisions can have huge consequences, it’s critical to instill the right financial knowledge in teenagers early on.
Teens will need to manage their finances for decades to come, but many lack critical knowledge at the time of their first job. They may go off to college not knowing whether to take out a student loan, how to budget for groceries, or why they shouldn’t sign up for dozens of credit cards.
What’s more, parents need to protect their kids from a grim future: on average, American households have over $8,000 in debt. Many adults have no retirement savings at all, and one-third of adults don’t follow an established budget.
Teaching your kids financial literacy skills early on can help them avoid these common pitfalls, and it may help direct them to better money management and a greater net worth down the line.
Fortunately, even a few fundamental lessons can set your teen down the right path. They don’t need to know everything about financial management right now, so start with the basics they’ll need over the next months and years.
For the sake of simplicity, many parents deposit their teens’ checks into their own accounts for safekeeping. This is especially true if the amount earned is minimal.
However, no matter how much your teen is making, now is the time to set them on the path toward financial independence. Help them set up their own bank account, ideally a low- or no-fee checking account with a debit card.
Hopefully, you’ve involved your teen in some household conversations about finances.
Now is the time to cement your financial discussions with practical lessons. Sit down with them and settle on a reasonable percentage of their paycheck to save. This ensures that even when your teen rushes out to spend their hard-earned cash, they’ll have money saved for a rainy day—which they’ll certainly appreciate later in life!
In today’s digital world of cell phone scams and phishing emails, it’s easy for even experienced adults to fall for subtle tricks.
Make sure your teen understands that no sensitive information should be provided to strangers by email or phone. If they’re unsure about a potential scam, they should talk to you and call the number on their card to contact the bank directly.
While your teen may not need a good credit score anytime soon, they can start building good credit—and good habits—much earlier. If you feel your teen is responsible enough, consider signing them up for a credit card.
With a credit card, teens can learn to pay off their balance, understand debt and interest rates, and even track their credit score
While it may not seem like much, a first paycheck is a great opportunity for you to teach your child to make productive financial decisions for years to come. Take the time to educate your child, and to encourage them to self-educate as well. Over time, you’ll find that financial literacy is one of the most valuable gifts you can give your child, and one that offers both of you peace of mind.
If you need extra help sharing some of the skills you want to teach, jump over to our financial literacy resources for tools and guides to help you on the way.
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