My daughter, at 16, decided she wanted a part-time job. This isn’t a topic we’ve discussed in the past, so it made me curious as to her motivations.
A new adventure for my daughter. Self-reflection for dad.
I recalled my first job delivering “New York’s Picture Newspaper,” The Daily News, at 14 years-old. The route was one of the largest in my Brooklyn neighborhood. The lessons were indispensable and are still with me today.
Selling, customer service, handling complaints, the discipline to wake before 5am including weekends, to make sure papers were delivered before morning coffee, and the financial reward I earned sacrificing hours of my weekend to collect payment from subscribers. It was a challenge, yet I remember how the job fostered feelings of well-being through a rough childhood.
I asked people face-to-face and through social media about their first jobs as teenagers.
The positive responses were overwhelming. People couldn’t wait to share. The exhilaration was contagious. Many were vocal about how the qualities they developed working as teens, were unequivocally linked to prosperity, financial and otherwise, as adults.
So, you have a teen child or grandchild who wants to work.
It’s a bittersweet moment. You’re proud; yet there’s something strangely sad about the milestone. Perhaps your teen is embracing maturity with gusto, motivated to take on new responsibilities and taking a big step to adulthood, to independence, which makes you feel vulnerable, uncomfortable.
Ok, those were my issues.
As the dust settled it was down to a stack of employer paperwork; decisions needed to be made about take-home pay (you mean I can’t spend it all?). It was a chance to work closely together and set the foundation for financial strategies that would last a daughter’s lifetime.
What did we do?
What can you try?
1) Celebrate the transition from payout to paycheck. Most likely, there’s been a long-standing allowance agreement at home. Sure, you taught the basics of save, share and spend early on, helping your child formulate a simple yet impressionable strategy of monetary discipline. It’s time to re-visit the discussion. The anticipation of sweat equity adds another dimension to save, share and spend. We had a “big picture” talk, exploring options on how to allocate her take-home pay. I was there for the genesis of her financial philosophies. What an honor.
My daughter’s respect for money she would soon earn was a welcomed surprise. I was not privy to this side of her. I wanted to celebrate this accomplishment; we selected an informal setting – it comfortable for her to share deeper thoughts around save, share and spend. I sought to guide the conversation, provide reinforcement for good ideas and create positive memories around how dad was proud of her transition from payout to paycheck.
2) Initiate the “Level 2, Triple S” protocol. My daughter thought I was referring to a new superhero (she knows what a big Marvel fan I am). No, it’s how save, share and spend grow super in proportion. It’s the “Triple S, Level 2” rite of passage. As a child, allocating an allowance or cash for chores, was important. With a job, parents and kids make allocation decisions with greater impact.
Oh, there’s another interested party looking to share in your child’s success: It’s the IRS and taxes are now a consideration. As an employee, your child will be asked to complete a W4 form to indicate the correct amount of tax to be withheld from each paycheck. For 2016, a dependent youth doesn’t require a tax return filed if earnings do not exceed $6,300, the standard deduction amount. In our case, we felt comfortable writing “EXEMPT” on line 7 of the W4; as a dependent she will most likely not exceed $6,000 in earnings for 2016 . If you believe your teen will earn more than the standard deduction, then enter 1 on Line B of the form.
3) Begin a Custodial Roth IRA. Working leads to new investment vehicle opportunities. We plan to fund a Custodial Roth IRA and have decided on a savings allocation of 30% each pay period to be directed into the Roth as a contribution. For 2016, the maximum that can be placed in an IRA is $5,500. Even invested conservatively, the $1,500 we plan to deposit, compounded annually at 4% has the potential to be worth over $11,000 tax-free when my teen reaches 67 years-old. Time is her greatest ally and part-time employment provides the opportunity to jumpstart her full-time retirement.
4) Start a cash-flow discovery exercise. As my girl has more money to spend, we plan to emphasize budgeting. It’s crucial she maximizes what’s left of her paycheck after taxes and savings. My daughter’s two biggest expenses – clothing and music downloads will be monitored using a free Smartphone budgeting application she selected.
Set aside 20 minutes each weekend to complete a “cash flow discovery” exercise to review expenditures. After all, having a pay check is exciting. Some kids get carried away and go through what I call an “independence splurge” where spending increases along with the first paychecks. Ironically, I’ve observed most of the spending is done at a teen’s place of employment as employer discounts are considered a “benefit.”
5) As a parent or grandparent, what have you lost and found again? At the celebration, I shared my early work memories good and bad. I opened up about the time I got fired from Stern’s Department Store. Not my proudest moment. My teen helps me re-live the best of my work habits and reminds me of why I’ve been motivated to succeed for so many years.
Your family finds your initiative admirable; also, they’re observing how you handle multiple responsibilities outside of home and school.
Your work efforts are forging their confidence in you to handle future fiscal responsibilities.
The disciplines that begin as a working teen will sharpen and live on in you for many generations.
The financial seeds planted today have the potential to grow large.
Richard Rosso, CFP, CIMA
Richard Rosso is the Head of Financial Planning for Clarity Financial. He is also a contributing editor to the “Real Investment Advice” website and published author of “Random Thoughts Of A Money Muse.” Follow Richard on Twitter.