InvestED | Teen’s First Paycheck? 3 Financial Moves to Help Them Thrive

When our oldest got her first job, we were thrilled for her!  As her parents, we were trying to balance being excited while helping her learn how to manage the bigger paychecks than she had seen in the past from babysitting and other odd jobs.  As your teen(s) start earning their own money, guiding them through a few key financial moves can set them up for future success. Here are a few ideas to get them started on the right track!

1. Help Them Set Up a Budget and Track Spending 

With that first paycheck comes the responsibility of managing money. Encourage them to create a budget that lists their income and expenses—think car expenses, cell phone bill, donations, college savings and of course, all those fun extras.  Just like us adults, a solid budget will help them keep tabs on where their money is going and make sure they’re living within their means. There are plenty of budgeting apps and tools out there that can make this task easier and even a bit enjoyable.

Budgeting tips to share:

•  Start with a basic budget or recommend a budgeting app.

•  Emphasize the importance of including savings in their budget so they get used to living on less than they make from the beginning.

•  Suggest reviewing and adjusting the budget regularly as their financial situation evolves.

2. Encourage Building an Emergency Fund 

As we know, life has a way of throwing unexpected expenses our way and it is important for them to start planning for unexpected expenses (or even opportunities like participating in a fun experience with their friends). Advise them to save up enough to cover three to six months of normal expenses in a separate savings account. This emergency fund will act as a financial safety net, helping them not always coming to their parents when those surprises come up.

How to build an emergency fund: 

•  Help them set a savings goal based on their monthly expenses.

•  Suggest setting up automatic transfers to their savings account each payday.

•  Remind them that even small, consistent deposits will grow over time.

3. Talk About Starting Retirement Savings 

It might seem far off, but starting to save for retirement now can make a huge difference later on financially and even mentally, teaching them the discipline to live on less than they make. As soon as your teen has an earned income and needs to file a tax return, they are now eligible to contribute to a Roth IRA.  Your teen can put up to the annual max, or their actual earned income, whichever is lower.  You (or a grandparent) could even offer a matching program!  For every dollar they put in, the parent puts in a dollar.  The earlier they start, the more they’ll benefit from compound interest.  Don’t forget, if needed, they can withdraw the basis (amount they contribute, not the growth) at any point without a penalty.

Retirement savings advice: 

•  Recommend opening and beginning to fund a Roth IRA.

•  If they have a company retirement plan that they are eligible for, encourage them to consider contributing enough to their 401(k) to get any

employer match.

•  Suggest aiming to invest around 10-15% of their income for retirement.

Wrapping Up

Helping your teen navigate their first job and their new financial responsibilities can make a big difference in setting them up for a successful future. By guiding them through budgeting, building an emergency fund and starting retirement savings, you’re giving them the tools they need to thrive financially. Your support and advice will help them tackle these early financial steps with confidence and prepare for a bright future ahead.