It’s that time of year again – a whole new crop of young people have gone out and gotten themselves their first job. Maybe it’s flipping burgers, maybe stocking in retail, or maybe they’ve opened a Shopify store.
No matter, they just became tax payers.
Next spring, they’ll become tax filers.
The good news – aside from the fact that they can finally quit borrowing money from you on Friday night – is that you, as a responsible adult, have the chance to reinforce how this new generation thinks about money. There’s good news in that conversation, too. Unlike previous generations, Millennials have a great track record of savings already – some as high as 20%. Now, as your kids are starting to work, you can discuss how income taxes work and how Social Security and Medicare are also taken out before they ever see their checks.
At the same time, many of us can remember cashing our checks on a Friday at the bank and stuffing most of that money into our wallets for the weekend. Today, the options available to us to teach savings are far different than the savings account that Mom opened when we were kids.
One of the key things that many young people today don’t “get” is a clear understanding of how taxes work. They see the money being taken out of their checks (and sometimes they don’t; even see that – direct deposit now being so predominant) and, until W2’s are sent at the end of January, they aren’t sure what that means.
If you have a new employee in the family, take some time this summer to review their paycheck stub and discuss what the different pieces are – what is Social Security, FICA, and state and local taxes, and how all those impact them.
At the same time, this is an excellent time to review the different ways that you, as an employee and parent, can take deductions based on home ownership, dependents, or the fact you are a business owner or contractor. One other key thing to remember with a new earner in the family – there are tons of ways they can learn to save – online, at the bank, or even – depending on their job – through a 401(k). Now, more than ever, is the perfect time to impress the importance of saving at least 10% – and likely closer to 20% – of each paycheck.
Rainy day fund? College tuition? New car? Investment?
Remember, your new earner is a real live person, so what about a life insurance policy – as an investment?
I’d be wrong not to say this, too: If you aren’t sure how to explain that – or if some of your own financials might need to be looked at in greater depth, me and my team are always happy to discuss how your taxes need to be considered, too!