Your teen has a summer job for the first time -- and that probably means he or she is also enjoying an income for the first time. Along with the new job, your teen is also learning other important ‘real life’ lessons like time management. Maybe you should help put money management on that list of lessons learned – because this is an ideal time to pass along some good information that’ll keep his or her financial future on track. Here are some tips to get you started.
Start early - The way your teen handles money as an adult will depend largely on the habits he or she learned from you growing up. Motivate your teen to become a regular saver and investor, and set a good example for your teen to follow.
Money management pays off - Relentless advertising and peer pressure make it easy for teens to overspend. Explain that effective income management begins with the cardinal rule of always controlling expenses so they don't exceed income. Help your teen create a realistic budget with goals that are measurable and attainable.
Start filing a tax return right away - If the summer job results in a T4 (a Statement of Remuneration Paid information slip issued by an employer) your teen should file an income tax return. Your teen's income may be below taxable levels but he or she will still start accumulating RSP contribution room, which can be carried forward indefinitely. When your teen reaches age 19, he or she should also apply for the GST/HST credit on each year's tax return. Based on net income, your teen will likely be eligible to receive quarterly GST/HST credit cheques.
Save today for a richer tomorrow - Encourage your teen to develop the habit of saving at least 10% of their take-home pay because early savings take full advantage of the miracle of compound interest. Here's a dramatic example you can use: Invest $1 a day for 40 years at an interest rate of 5% and you'll have about $44,000!
Teaching your teen about the value of money and money management will help ensure a comfortable financial future. Sometimes, with a teenager, an external informed opinion can help - so why not give your professional advisor a call for some additional help?