If your child is working a job this summer for the first time, this is a great opportunity to teach them how to be responsible with a paycheck. Here are three different ways your child can save their paycheck.
#1 Set Up a Retirement Savings Account
This may feel like years or decades too soon, but the sooner your child starts saving for retirement, the better off they will be. The key to having a lot of money to retire young is by starting early. This is also a good way to teach your child that they should always pay themselves first with their paycheck before paying bills or spending the money in frivolous ways.
Help your child set up a 401 (k) or Roth IRA savings account. You can also help your child see the tax benefits of saving for retirement by teaching your child about how this money comes out pre-tax, which essentially lowers the amount of taxes that come out of their remaining paycheck.
#2 Set Up a College Savings Account
Second, if you already have a 529 college savings account set-up for your child, help your child contribute towards that savings account. It is important for your child to realize that obtaining a higher education costs money. Having your child contribute to their college savings account will get them invested, both financially and emotionally, in the process of paying for their education. It may even help them value the education that they get a little bit more.
You can also teach your child about how 529 plans do not reduce one's tax burden up-front but have long-term tax benefits. Explain to your child that any money they contribute to the 529 plan will be able to grow tax-free until they withdraw it to pay for their future educational needs.
#3 Set Up A Fun Account
Finally, make sure that you teach your child that saving money does not have to all be about the far-away future. Help your child make plans for how they want to spend a portion of their money having fun and meeting other personal goals. Perhaps your child has always wanted to purchase a guitar, or they really want to go to a specific concert or festival. Help them figure out how to make a savings plan for the things that they want to do right now in life as well. This can be their fun account. Your child should understand that there are fun and immediate benefits to making money as well as long-term benefits.
Set your child up with your accountant and assist them with creating a retirement savings account, college savings account, and a fun money account. For more help, talk with an accounting services specialist like those at Watson & Company Inc..