Financial Lessons Your Teens Learns from Their First Job

That first paycheck carries with it a lot of pride whether you’re a teen or an adult. But, sometimes that’s overshadowed by the disappointment in the amount actually written on it.

In their first job, most teens aren’t just learning about what’s being taken out of their paycheck; they’re only beginning to understand just how far that paycheck will go.

It’s one thing to teach your children financial lessons with the money you earn or that they’re given. But, the real lesson begins when they start earning and using their own money.

So, encourage them to work hard at their first part-time job, and start talking to them about what they will actually be earning.

Gross Income = The total amount of pay for work before anything is deducted.

Net Income = The amount left from the gross income after taxes, FICA, insurance and other deductions have been made. This is the amount that can actually be cashed or deposited.

So, what is taken out of the gross income to make up the net income?

Federal Income Taxes
State Taxes
Local Taxes
Social Security (FICA)
Medicare (FICA)
Insurance (if applicable)
401(k) or Retirement withdrawal (if applicable)

It is a good idea to go ahead and talk with them about the additional withdrawals that will be made once they’re in a full-time position, such as a 401(k) or insurance. Also, explain why they’re paying the government. Point out things in your city, school or state that those dollars are helping fund.

But, even more than what is being taken out of their check, your teen needs to understand the limitations of that money. Here are some discussions to have with them before they decide to spend that first check:

How much should they save?

This should be the first discussion, because the idea of savings is one of the most important in staying financially healthy. To help them decide how to answer this question, talk to them about their goals. Do they want to buy a car? Have gas money to travel? Do they want to go to college?

Even if they say their only goal is to have some money to go to the movies every weekend, it’s a good idea to help them start a savings fund. You might even consider establishing a savings rule. This could be a set percentage that they need to save out of each paycheck.

You can learn more about First Kentucky savings options here.

What extra expenses will come up because of their job?

They may not realize that sometimes with a job, extra expenses come up that they normally don’t have to worry about. For instance, are they starting a job at a restaurant? If so, they may need to purchase certain types of shoes to work in. Or, is a certain wardrobe expected of them? They may end up having to buy clothes that they only wear to work.

Then, are they driving themselves to work or are you still driving them? Either way, let them know the amount of gas that’s needed to simply go to and from work.

Why shouldn’t they grab a snack from the vending machine every day?

Once you have a little cash in your pocket, it can be easy to start grabbing little treats for yourself here and there. And that’s OK, just understand how those little expenses can quickly add up.

Most teens only know they have cash in their pocket and so clearly that means they can buy what they want … help them understand that’s not always the case! This is a great introduction into budgeting and saving.

Write out how much they’re spending on eating out during their break or when they grab a snack from a vending machine. Sit down with them and do the math. If they eat out at a fast food restaurant each day, then they’re spending around an hour’s worth of wages (possibly more) on each meal. Once they see how that amount adds up over the course of a month, they’ll begin to see how important it is to limit those expenses.

Why should they track their expenses?

If you don’t do this yet, now is a great time to start! You and your teen can keep each other accountable. There are mobile apps that help you keep track of your expenses, or you can use a traditional check register.

The important thing is to teach them to track where they are spending the most money and continue asking this question: “Is this a necessary purchase?”

The easiest way to keep finances in check is with a budget. This helps you track your expenses and gives you a quick glance at where most of your money is going. Once you have a few months of data, then you can go back and see if there’s a certain area where money is being wasted.

There are many factors to consider before spending money, so let your teens in on how you make some of those decisions.

If you’re wanting some more tips on helping your teens make smart financial decisions, then read here