Teens: How to spend the money from your summer job

Now that fall is – gasp – in sight, it’s time for teens who are spending the summer working to figure out what to do with all that hard-earned cash. Spend it on an iPhone 5? Concert tickets? Clothes? A new piercing? Not so fast.

Sure, teenagers who join the workforce for July and August deserve to reward themselves. But money maven Nancy Phillips — author of the forthcoming books The Parents Guide to Teens and Money and The Teen Guide to Wealth and Happiness — suggests young people take a moment to think about the bigger picture before blowing money on the small stuff.

“Because of the speed with which our society is moving and the changes in technology, teens can spend money faster and more easily than ever before, and that means they can go into debt far faster and more easily than ever before,” says Phillips, founder and president of DollarSmartKids Enterprises Inc.

“It’s more important than ever that teens learn financial life skills and how to manage money before they leave home.”

Without pausing before purchasing, the influence of advertising, the media and peers becomes harder to resist.

“The best place for teens to start defining their money strategy is to begin by identifying their personal values, interests and goals so they know what they really want based on where they want to go,” Phillips says.

“The easiest way to do this is to write down their wish list and prioritize [items on] it so they think through the pros and cons of the items they want most. This approach will help teens begin to plan purchases and as well as make decisions they’re happy with, as opposed to them feeling buyer’s remorse because they wasted money on something they didn't really want or need.”

For concrete tips on smart money management, Phillips urges youth look to so many individuals with high net worth who tend to divvy up their earnings into four categories: giving, investing, saving, and spending.

“They don't spend their way to wealth; it isn't possible,” she says. “I call this the GISS method of money management, and it’s simple, inspiring and effective. Teens can use the process to make their goals and dreams a reality.”

The easiest way to track money is to divide a bank account into four sub accounts. The DollarSmartKids’ website also has financial-tracking worksheets and values-based goal-setting resources for teens.

Give 10 per cent

“Giving is a very powerful experience for teens, because as they give and help others they become aware of their ability to make a positive difference in their world,” Phillips says.

“This enhances self-esteem, increases the feeling of personal leadership and responsibility, and connects them with causes that are personal, relevant, and meaningful. It is also a wonderful way to meet people with similar interests and can often lead to job opportunities and help define career paths.”

Invest 15 per cent

Investing for the future is an essential part of financial independence. And the sooner you start, the less intimidating the process.

“It’s essential that they understand an investor doesn't have to have a large amount to start," says Phillips. "Small, consistent steps can lead to big long-term results. This money can eventually be used to start their own company, invest in a company, buy rental properties or purchase commodities, stocks or bonds.”

Save 25 per cent

Saving allows a teen to work toward and acquire what’s most important to them, whether it’s a car, a university education, or a new cell phone, Phillips notes. They can save for multiple goals at the same time with differing amounts allocated to each.

“Research has shown that self-control in childhood is a key indicator of future financial success in adulthood, and saving is one of the best ways to develop self-control,” Phillips says.

Spend 50 per cent

“This category will ultimately become a chequing account and is the money used for expenses such as lunches, gas or a cell phone bill,” Phillips says. “A portion will also be the fun, ‘live in the now’ money, so teens need to ensure they manage this category well over time.”