Tuesday, August 13, 2013

Summer job money – a great time for life lessons in income management

Your teen has their first ever summer job – and an income! Part of your teen’s work experience will likely include on-the-job instruction and part of their summer experience should definitely include on-the-money instruction. Money management is an important life lesson everybody needs to learn and, with your teen about to enjoy a regular payday for the first time, you have the perfect window of opportunity to pass along some good information that will put them on the fast track to future financial success. Here are some on-the-money tips to pass along.

The early bird builds a bigger nest egg. How your teen handles money as an adult will depend largely on the habits they learn growing up. Be a good money role model and motivate your teen to be a regular saver and investor from day one.

Money manage for advantage. Peer pressure and relentless youth-oriented advertising have escalated teen overspending into an expensive – and potentially lifelong – epidemic. Effective money management is the cure. Explain to your teen the value of always controlling expenses so they don’t exceed income. Work with them to create a realistic budget with measurable and attainable goals – and be their guide along the way.

File today for better returns tomorrow. Your teen should file an income tax return to report the earnings from his or her summer job. Your teen’s income may be below taxable levels right now but they will start accumulating RRSP contribution room that can be carried forward indefinitely. When your teen reaches age 19, they 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 cheques.

Be a ten-percenter today for a richer tomorrow. Early savings take full advantage of the miracle of compound interest – so encourage your teen to save at least 10% of their take-home pay by using this dramatic example: Invest $1 a day for 40 years at an interest rate of 5% and you’ll have about $44,000!!1

You know the lifelong importance of saving, investing and money management and you want your teen to know all about it, as well – and to follow your teachings to a comfortable financial future. But sometimes teens develop selective hearing loss – especially when it comes to accepting advice from their parents. An external informed opinion can make the difference – so why not give your professional advisor a call for some additional help?

1The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.