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Financial Planning for Teens Featured

Riqo Fraser Union Bank, N.A. Assistant Vice President and Branch Manager Riqo Fraser Union Bank, N.A. Assistant Vice President and Branch Manager

Most schools no longer have the resources or funding to teach financial literacy, including how to budget, save or set personal finance goals, but a recent Union Bank survey with Harris Interactive® reports that our nation’s kids are hungry for information. The online survey of 8 to 18 year-olds found that 76 percent want to learn more about how to save money and the majority (63 percent) want to talk more with the adults in their life about how to save.

We — parents, teachers, guardians and mentors — can help teens and teens develop confidence and smart financial habits by giving them opportunities to make independent financial decisions and by demonstrating sound financial management of our own finances.

Following is information about financial planning to help youth develop smart money management habits and is first in a four-part financial planning series. Earning a wage Teens may already be earning an allowance, but as they become more independent and incur more expenses, it may become necessary for them to explore a part-time job. Keep in mind that the U.S. Department of Labor requires minors to be at least 14 years of age to be gainfully employed and limits the amount of hours they can work until they reach the age of 16. Once they become employed, have a frank discussion about any expenses that you will expect them to pay for, such as car insurance or clothing, and the expenses you intend to pay for with the family budget. Explain that employers are required to deduct Federal taxes from all employees, even for minors, and show them how FICA and other taxes are deducted from their checks. In some states teens may also have to pay state income tax, and employers might deduct part of their pay for Social Security, Medicare, health benefits or retirement funds. Have your teen become familiar with tax forms and show them how a tax return is filed, so they understand how to claim a refund if one is due. Budgeting and saving Teaching kids to develop and stick to a budget is an important skill that will last them a lifetime. Direct them to online resources and smart phone applications available to help create and keep a budget, or show them how to develop a budget on the computer or on paper. Simply make two columns and in the first list all their sources of income. In the next column, list their expenses and savings goals. Explain that their income column should total more than the expense column, and if it doesn’t, work with them to develop a plan for making up the shortfall. Teach teens the important concept of “paying yourself first,” and encourage them to put money into savings regularly for both shortterm and long-term goals. Consider matching what your teen saves so they will see results faster. Establishing a banking relationship If you haven’t done so already, visit a bank with your teen and set up a savings account. Introduce them to the branch staff and manager and explain basic banking concepts, such as credits and deposits, debits and withdrawals, and show them that simple addition and subtraction along with attention to detail can help keep the account balanced. Show them how interest and compounding can help their money grow. When your teen is ready for the responsibility of his/her own account, many banks offer checking accounts specifically designed for teens, usually set up as joint accounts with a parent or guardian. Show your teen how to write a check, balance the account, read a statement, and handle all the responsibilities of a checking account. Incorporate technology and research various ledger applications available for smart phones.

Using Credit Wisely Once your teen turns 18, and in some cases even sooner, he/she will likely start receiving credit card offers so carefully explain how credit works and the importance of managing it responsibility before your child turns 18. Review the credit card agreement, which you may be required to co-sign until your child is 21, and explain how interest works if the bill is not paid in full each statement period. Discuss how poorly managed credit can have negative consequences. It might also be wise to request that the credit card company assign a low credit limit to help your child learn to manage credit without getting into too much debt. The foregoing article is intended to provide general information about financial planning for teens and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor.

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