First jobs are a rite of passage for young people, offering a degree of financial independence. They can provide a great work experience and skill development, as well. Even so, kids shouldn’t start handing out a bunch of applications until they’ve considered a few financial issues.
1) Taxes
Depending on where you’re located, your child might have to file a tax return related to their work income. The amount of money your child is able to earn often plays a role in this. In many areas, your child is exempted from having to file as long as the income amount is under a certain threshold. Your child will also need to understand the difference in classifying employees versus contractors so they are properly taxed, and how taxes can reduce the amount of take-home pay he gets.
2) Retirement
Many employers offer options that allow employees to save for retirement. Some companies, for example, allow employees to deduct funds automatically from their usual paychecks and put them in a retirement account. Others have programs where they match contributions to retirement accounts up to a certain amount. Teenagers are often surprised by this because they aren’t thinking of their golden years yet, but they likely will need to make a call on how to handle retirement options when they fill out their employment paperwork, and it can affect take-home pay.
3) Methods of money access and management
Your child has many different options about how he’ll manage his work income. He can get a paper check, for example, or he can opt for direct deposit. These types of options directly influence the ease with which your child can access and track funds. Your child ideally should think about this before he applies anywhere so that his management method is already set up and ready to go when he gets hired. You might have to be a joint account holder with your child in order to make this work.
4) What the money will go to
Goals are important when your child gets a job because it gives purpose and meaning to the work he does and the income that results. It’s standard to divide earnings into three major buckets, including saving, spending and charity, but within this, have your child be specific, such as saying that half of the savings goes to college and the other half towards a new car. With specific goals, it’s less likely that your child will spend mindlessly. He can also track progress and feel good when he achieves the financial goals he comes up with.
5) Transportation
Regardless of whether you drive your kid to his job or he drives himself, there will be costs associated with gas, vehicle maintenance and insurance. This can eat into wages pretty significantly if your child has a long commute, is in a minimum wage position, has any accidents in his history, or has an older car. If you drive him, you also have to make sure his job schedule coordinates with yours. If he takes a bus, he might be able to save and be more independent, but you still must think about safety.
6) Financial aid and loans
When a child works, it sometimes can affect whether they qualify for financial aid, depending on their household income level and the wages they are receiving. In some cases, it’s actually beneficial for your child not to work. On the other hand, the ability to show an income sometimes can make it easier for your child to get a loan.
7) Career direction
Often, the jobs that young people get have absolutely nothing to do with what they want to go into for a career. Kids tend to take whatever jobs are available, which usually are the lower-paying positions that don’t require much, if any, experience. Whenever possible, it’s ideal for your child to get a job that at least indirectly relates to what they plan to do later, because then they can use their initial work experience on their resume and appear more attractive to future employers. That influences the wages or salary they’ll get and how financially secure they will be.