Thanks to a hot labor market, employers are hiring teenagers in record numbers. They’re also paying more, with average teen wages up 9% over 2022. A first job has always been a place to learn new skills and gain independence—but now it’s also increasingly allowing teens to become financially savvy early.
In a survey of 2,000 consumers conducted by OnePoll on behalf of BOK Financial®, approximately 84% of respondents said that having a job in high school is important, including more than 45% who said it's very important. One major perk of working before graduating is having money to practice financial skills before leaving home.
Piggybanks and paychecks—options for young earners
Jessica Jones of BOK Financial Advisors suggests parents let children spend 90% of their earnings and save 10%, starting with a three-month emergency fund.
"Ideally, your teens are already paying for a portion of their expenses, like their cell phone or car insurance," said Jones. "With my 12-year-old, I started by having them save three months of their regular expenses in a cash nest egg, and then move on to investing or doing more long-term saving."
Once a three-month emergency fund is in place, Jones suggests parents then help students put 10% of their earnings away for the long term.
"For the long term" can mean many things, from saving for a big purchase like a car or college or thinking way ahead to saving for retirement. Thankfully, young people and their parents or guardians have a variety of options for saving and investing, including a:
- Youth Savings account is opened on behalf of a minor with you as the joint owner.
- 529 savings account for education after high school.
- Uniform Transfer to Minors Act (UTMA) or a Uniform Gifts to Minors Act (UGMA) account for the child to accept gifts. The accounts do not have any limitations on contributions.
- Roth IRA for retirement. This year, eligible workers may contribute up to $6,500 to their Roth IRA. Note that a minor can contribute to an IRA based only on the limits of their own earned income.
"The big picture objective is teaching kids how to save over time and how to do it responsibly," said Jones. "Even if they plan on cashing part of it out to pay for college in five, six or seven years, for example, you’ve taught them how to do it, and they see that it does work.”
For most of these savings and investment tools, you'll need to be involved; your child cannot open an account independently until they are 18 years old.
Connecting the dots: Motivating teens to save
Parents typically know it’s a good idea to save, but sometimes kids don’t agree. If your child isn’t motivated to save or invest their 10%, Jones suggests a few tactics:
- Have them invest in stocks representing products they love, like Disney, Nike or Netflix.
- If you can, match their savings and investment contributions so they are doubly motivated.
- Share your historical 401(k) earnings so they can see what compound interest looks like over time.
- Be honest about what you wish you had done differently from a financial perspective when you were young.
Families should start money talks young
One way to develop financially literate young people is to discuss money matters before they ever have a job. Starting with age-appropriate lessons early on, kids can learn financial responsibility from as young as five.
Chet Samuelson, Arizona market president and CEO for BOK Financial, encourages parents to provide their kids with opportunities to spend and save before they get a paycheck, and certainly, while they are still in the low-risk environment of your home.
"Kids need to feel a sense of ownership over their money to learn," said Samuelson. "If they're not old enough to work, it can be helpful to seed their accounts with some cash so you can start having money talks."
A dad to a 12-year-old and a 15-year-old, Samuelson started with snack money. "When my kids were little, we would go on road trips, and I would give them a plastic baggie of cash and coins," recalled Samuelson. "That would be their spending money for the trip, and they had to make it last. If we stopped at a gas station and they wanted chips or a souvenir, they had to buy it themselves."
Once young people get the hang of basic financial literacy, saving and investing will come much easier—whether they’re at their first teen job or down the road in their careers.