Teens soon will spill out of classrooms and into summer jobs, creating something valuable for parents.
A child's first job is a golden opportunity for parents to blend lessons on saving, taxes and budgeting with a child's real-life work situation, experts say. And teens desperately need those lessons.
A survey by Jump$tart Coalition for Personal Financial Literacy released this month found that 12th-graders on average flunked a test measuring their knowledge of personal finance basics.
Even worse, these high school seniors, who scored an average of 51.9 percent, underperformed their peers of three years ago, who also got an F but with a higher average score of 57.3 percent.
Lewis Mandell, the survey's researcher, blames the drop in scores on pressure being placed on high schools today to teach courses that will help students pass basic exit exams, leaving little time for personal finance lessons. (In Maryland schools, personal finance is not required, although components of it are included in social studies and family and consumer sciences courses.)
Mandell, dean of the school of management at the University of Buffalo, said the survey also revealed that many traditional ideas of how to make kids money-smart didn't pan out. For instance, teens who are given allowances, own stock in their own name or whose parents openly discuss money fared no better, and sometimes even worse, than peers without such experiences. "Every hypothesis held dear was blown," he said.
The survey did find that students learn best when money matters are taught in an interactive, reality-based way. That may be why working teens who handle their own money scored higher than their nonworking peers on the test, Mandell said.
Financial experts advocate that schools teach personal finance in a way that actively engages kids. In the meantime, parents can use a summer job or part-time work during the school year to teach financial lessons that can last a lifetime.
Begin by explaining that gross income won't equal take-home pay once Uncle Sam gets through, experts suggest. Parents need to explain FICA and any other taxes or deductions that will reduce a child's gross income.
"Help them understand what those taxes are going to pay for," said Elizabeth Schiever, with the National Endowment of Financial Education in Denver. "They all like automobiles. Somebody has to pay for those roads and the upkeep."
Taxes shocked Shauntia Burley, a 16-year-old who landed her first job in the fall at Premier Cinema in Pasadena. Shauntia, who makes $6 an hour as a supervisor, said she clears about $300 every two weeks, with about $100 taken out in taxes.
"She wanted to know who were these people taking the most money out of her check. Who is FICA?" recalled her mother, Kimberly Burley. Burley said she showed her own paycheck as a paralegal for the Justice Department to Shauntia to explain what taxes are taken out and why.
Next, help teens develop a budget, experts said.
Don Blandin, president of the American Savings Education Council in Washington, recommends that teens divide their paycheck into three categories: Spend and Give, which is money for immediate purchases and charity; Save, funds for short-term goals reached within a month; and Invest, money that won't be touched for five years or more and can be invested in a mutual fund.
Let teens decide how much money should go into each category; although, if asked, parents may suggest divvying the money equally among the categories, Blandin said.
Generally, experts recommend that at least 10 percent of teens' take home pay should go into long-term savings for college or other major goal. Goals, such as a car or college, make it easier for teens to save, experts added.
Savings should be kept in a savings account, where teens can learn the magic of compound interest, experts said.
Parents also can reward savings by matching what teens put aside in their bank account dollar-for-dollar or 50 cents for every buck saved, said Steven Sanders, a Philadelphia money manager who talks to teens about finances.
Saving and goals haven't been a problem for Shauntia, who from the beginning has salted away at least half her paycheck so she can buy a car. Her parents plan to split the cost of the auto with her.
"Most of my friends take their paycheck and go out shopping as soon as they get it. They come back and say, 'I'm broke,' " she said. "I don't really want to do that just in case I would need the money, I wouldn't have it."
Though it may be hard, parents must let their children make spending mistakes. "They will make mistakes and they will learn from their mistakes," Blandin said.
Gerald Young did. The 17-year-old bagger at Fresh Fields Whole Foods Market in Baltimore said he blew his early paychecks on clothing, including a $500 sweater. "Once it's gone, it's gone," he said.
Now he's more careful when weighing his purchases, deciding between wants and needs. "I think about: I want these tennis shoes, but I need deodorant and a toothbrush. What's more important?"
And he's gotten better at budgeting now, stretching his dollars so he could set aside two paychecks for a Florida trip in May, he said.
Parents also should not bail out a teen who has frittered away a paycheck and now comes up short for nonessentials, experts said.
"A really good lesson would be: 'You know, you're only paid bi-weekly. You will have to learn to budget so it stretches,' " said Dara Duguay, executive director of Jump$tart in Washington. "If parents bail them out, they will be 40 years old and calling the parents, 'Can you help with the mortgage?'"
Some experts say parents should come to the rescue -- but only once -- if teens get over their heads in credit-card debt that threatens their credit history. Prospective employers sometimes look at credit reports and a negative one can prevent a teen from getting a job later on, experts said.
Seven percent of high school students, age 16 to 18, have a major credit card in their name and 6 percent carry a gas or department store card, according to a survey last year by the American Savings Educational Council. Of those, 22 percent tend to carry balances.
Before teens get a card, they should demonstrate that they are responsible with money, experts said. When they do get plastic, it should carry a low credit line, or be a secured or debit card that limits how much teens can buy based on the amount in their bank accounts.
Last, parents themselves must set a good example. "As much as teens may think they are independent-thinking, they're following what we do as parents," said Sanders. "They are following our examples and gravitating toward our negative habits."
You can reach Eileen Ambrose at 410-332-6984 or by e-mail at email@example.com