It’s always exciting when your kid starts their first job! Getting that first paycheck can be a little confusing; this article is a great reference for any first time worker, no matter what age. Once they understand their paycheck, the next step is having a checking account so they have a safe place to keep their money.
Sign up for an online checking account – a new way to bank!
Next, it’s time to figure out the best ways to save and invest the money to build wealth for the future. We’re sharing a few different options to get them (and you) started.
Automated Savings
It’s a smart move to set up automated transfers of funds to a savings account whenever money comes in. Encourage your child to start moving a portion of their paycheck from checking to savings each payday. This can be a percentage of their income or a set amount. Remind them to revisit that amount every six months and see if they’re able to increase it. You can even set this process up to be automatic. This means your child won’t have to remember to move it over manually.
Share Certificates or Certificates of Deposit (CDs)
A Share Certificate or Certificate of Deposit is a great option for investing money. They often have a higher interest rate than your standard savings account. Plus, there is no risk with a Share Certificate, so they’re appealing to early investors. Having a savings account for short-term savings and a CD for longer term can be a good idea even for the youngest financial planners. If your kid is feeling ambitious, you can work with them to set up a CD ladder. A CD ladder is when you purchase multiple CDs that all mature at different dates and have different interest rates. As each one matures, you can take that money and re-invest it in a new CD. This is a great process your child could implement for a few years of high school, with the CDs planned to mature just in time to use them towards college costs.
Start a Roth IRA
As long as your child is earning money on their own, they can start a Roth IRA. An added bonus is that they can make withdrawals from that retirement account for qualified education expenses if needed. Beware of using a retirement account while they’re in high school or college, though. Some private colleges will consider a child’s retirement account as part of the resources that can be used towards education costs, thus decreasing eligibility for financial aid. Keep in mind how custodial accounts and the age of majority works in your state so you can open the right account with your child as they start their financial journey.