Managing Money and Expectations

Now that your teen is making money, it’s important to help manage expectations along with the actual income. Help your teen responsibly manage paychecks by recommending that he:

• Open a checking account and a savings account, if this hasn’t happened already.
• Consider linking a debit card to the checking account.
• Learn how to balance a checkbook.
• Look carefully at each pay stub, and check the rate and hours for possible mistakes.
• Deposit checks immediately—or use direct deposit.
• Never use a check-cashing service or “payday loan” service, because they charge higher interest rates and fees than banks or credit unions.

And of course, you'll want to help your kids understand that once they start earning income, Uncle Sam will expect to hear from them. Here are some tips for dealing with taxes:

• Prepare for the tax bite. Many young people are disappointed to see how taxes have eaten away at their take-home pay.
• Be sure your teen selects the correct number of allowances on Form W-4. The IRS provides a useful Withholding Calculator to help determine the proper number of allowances. (The number of allowances determines how much federal tax is deducted.)
• If the employer doesn’t withhold taxes, make sure your teen sets aside enough money to pay his or her own taxes come April.

For more information on how to prepare your teens for this inevitable obligation, review our Taxes section.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of savings and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction or strategy for his or her own particular situation. The examples mentioned are for informational purposes only and are not intended to represent results you should expect in the future. Data contained here is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.