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Raising Money-Smart Teens

As teens are participating in summer activities, especially those that cost money, it presents an ideal opportunity to help them learn about earning, spending, and saving. Here are a few age-based tips.

 Younger Teens

 In recent years, apps have proliferated to help parents teach tweens and teens basic money management skills. Some money apps allow parents to provide an allowance or pay their children for completing chores by transferring money to companion debit cards. Many offer education on the basics of investing. Others allow children to choose from a selection of charities for donations. Some even allow parents to track when and where debit-card transactions are processed and block specific retailers or types of businesses.

 Most apps typically charge either a monthly or an annual fee (although some offer limited services for free), so it's best to shop around and check reviews.

 Older Teens

 Many teens get their first real-life work experience during the summer months, presenting a variety of teachable moments.

  •  Review payroll deductions together. A quick review can be an eye-opening education in deductions for federal and state income taxes, and Social Security and Medicare taxes.
  • Open checking and savings accounts. Many banks allow teens to open a checking account with a parent co-signer. Encouraging teens to have a portion of their earnings automatically transferred to a companion savings account helps them learn the importance of "paying yourself first." They might even be encouraged to write a small check or two to help cover the expenses they help incur, such as Internet, cell phone, food, gas, or auto insurance.
  • Consider opening a Roth account. A teen with earned income could be eligible to contribute to a Roth IRA set up by a parent — a great way to introduce the concept of retirement saving. Because Roth contributions are made on an after-tax basis, they can be withdrawn at any time, for any reason. Roth IRA earnings, however, can only be withdrawn tax-free in a narrow set of circumstances until the account holder is 59 ½, or else they’ll pay ordinary income taxes and be subject to a 10% early withdrawal penalty. There are exceptions when paying for college or a first-time home purchase. Should these situations arise for your teen, our Advisors would be more than happy to help you work through the details.

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