First jobs for teens: How to budget your paycheck

As USAA advice director and father of two, I can attest that parents and teens agree on at least one thing: Landing that first job is an important step toward adulthood. Our son recently celebrated his 16th birthday, and my wife and I are beginning to navigate this rite of passage.

If you're like us, your conversations may be anchored on two questions: Where can he find a part-time job? And what kind of budgeting is best or right for teens?

Read on for advice on how to prepare your teen for the responsibility that comes with a paycheck.

How to get money as a teenager

Long before your child hits the legal working age for your state, they can start earning money. Often kids mow the grass, babysit for children in the neighborhood and walk dogs. I've lost track of what we called our son's “trash money,” a fund he's built simply by rolling the neighbors' trash cans out to the street and back once a week.

While these small responsibilities may not be glamorous, they don't require a driver's license and are easy to fit into school schedules. The money adds up — the more trash cans my son schleps to the street, the fewer Nintendo games I've bought.

Now that he's reached Texas's legal working age of 16, my son is ready for a more adult job, which he defines as one that pays more and provides more working hours.

The top jobs for teens generally include things like cashier, restaurant server, retail worker, office clerk and janitor, according to the U.S. Bureau of Labor Statistics.^{See note1} In addition to looking into local restaurants and coffee shops, clothing stores and grocery stores, we've suggested he expand that list and consider lifeguarding and tutoring.

These are all great contenders because they require very little training and experience. When your child applies, encourage them to discuss the number of hours they're available to work with their potential employer. The goal is to align expectations. My friend's daughter got what seemed to be a great job, but, despite her availability, she was only scheduled about 10 hours each week. She easily secured another job with an employer who was willing to bump up her hours.

What's in a paycheck?

When teens hear their hourly rate, they do some quick calculations: A starting pay of $15 an hour working 30 hours a week means they'll take home $450 per week, right?

Well, yes… before taxes. Have a conversation with your teen about gross income versus net income, so they're not caught off-guard when they notice their first paycheck is less than expected. A quick reminder:

• Gross income is the total earnings an individual makes.
• Net income is the amount an individual receives after employers make deductions to cover federal and state requirements, plus benefit costs. This is also referred to as take-home pay.

This is a great time to talk about taxes. Discuss the services everyone uses — the fire and police departments, the roads we drive on, their teachers' salaries, the military, hospitals, parks and post offices.

Chances are that your children won't be thrilled to learn that a big chunk of their paycheck won't make it to their bank account. But at least on some level, they'll probably appreciate living in a society that makes these public services available.

Budgeting for teens

Before you help them set up a youth banking account — whether or not they've landed their first job — you can talk to them about how to budget. Teach your children how to make a spending plan for where their money will go.

Spending plans, or budgets, contain three buckets: savings, needs and wants. Start with a 20/50/30 budget and adjust from there:

• 20% goes toward savings and debt repayments.
• 50% funds the things they need.
• 30% is left over for the things they want.

If your child learns how to budget now, they'll be well-prepared for future financial success. Find more information on our dedicated budgeting page.

How teens spend their first paycheck

Now that the money's in your teen's hands, help them put their spending plan into action. With those three buckets in mind, they can set up youth bank accounts that help them prioritize their goals within each bucket, with your help of course.

You can also establish parental controls to help them course-correct if needed.

USAA Federal Savings Bank's youth bank accounts come with features such as direct deposit and easy online transfer so teens can divide their paychecks between their checking and savings accounts. Again, this is based on the permissions you provide as the adult joint account holder.

Your teens can get an ATM card with a USAA Youth Savings account. Or they can get a debit card with a USAA Youth Spending account.

Also, check whether the bank has services that help avoid overdrafts. For example, you can set up overdraft protection for your USAA Federal Savings Bank account, and be assured by the inclusion of zero liability^{See note2} for unauthorized charges made with a USAA debit card.

Finally, if teens lose their ATM or debit card, they'll appreciate the ability to lock and unlock their account.

How to save money as a teenager

In my experience, teens — like adults — are more successful at saving money if their savings are tied to a particular goal. Ask what's important to them. Maybe they want to save for a car, college tuition, Christmas gifts for family members or even a new gaming system set to be released later in the year.

Here's the important takeaway: Your teen is getting into the habit of saving money. They can decide now to set a little money aside with each paycheck, barely notice that it's missing, and then have the money later for a significant purchase. The lesson? Saving pays off — and it isn't that painful.

You've already talked to your child about direct deposit. You can also set up multiple savings accounts or digital envelopes labeled for a particular goal. This helps teens remember what they're working for and resist impulse buys.

When they reach their goal and are ready to spend their savings on its intended purpose, assert your parental privilege. This is your moment to remind them that their commitment to saving paid off.

With an earned income, even teens should begin thinking about saving for retirement. This is an important goal for their financial future, even at their early age. Help them learn more about the power of compound interest — plus Roth versus traditional IRAs.

Personal finance for teens: How to prepare for the unexpected

As you help your teen research banks to find the account type that's right for them, encourage them to examine savings tools and security features.

Depending on their bank's age requirements, teens — and even younger kids — may be able to log into their mobile app for charts and other visual aids of how their buckets are filling. Similar to fitness apps that track your progress, these visual representations help be helpful when it comes to reinforcing positive decisions and showing the payoff from incremental gains.

From getting their driver's licenses and first jobs to navigating the world of banking, young people partake in a lot of adulting during their early teenage years. If you can celebrate with them when they get that first paycheck and be there to guide them through a few personal finance basics, you'll go a long way toward establishing a strong financial foundation that will help them throughout their lives.

The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.