With summer nearly here, and your teen perhaps itching to start a summer job, it’s a good time to consider just how much your kid knows about money.  Now is the time to start practicing the sorts of financial planning that will serve him well when he’s out on his own in just a few years.

Here are seven conversations to have this summer, when money might seem to grow on trees and ways to spend it grow even faster.

1. Figure out what gets taken out of a paycheck. Before your child gets his first paycheck from that summer job, give him a heads-up about why his take-home pay will be different from a simple hours-worked-times-hourly-wage calculation. You may even want to have this discussion before he decides to take the job.
2. Calculate how many hours of work are required to… Buy a pizza? Go to a concert? Buy some new shoes? Help your child see how an hour of work translates into the purchases she makes. Remember to include sales tax in the purchase prices.
3. Read the fine print on a credit card agreement. This will alarm and amaze your teen if it doesn’t bore her first. But kids need to know. What interest rate is charged and how can the rate go up? Can the rate ever go down? What is the minimum monthly payment and what happens if it’s not paid on time? Long before your child asks for a credit card (or goes off to college and is pursued by credit card companies), make sure she knows that this privilege isn’t free.
4. Plan for ten thousand dollars. Imagine that your kid will make $150 a week at her job this summer and that she puts a third of that in a savings account at 2% interest compounded annually. If she keeps up this rate every month from June until forever, and never makes a withdrawal, when will she have $10,000 in the bank? Read some back and credit union ads and see what the best interest rate is in your area.
5. Figure out how much it costs to drive the car to the movies and back. For this, you’ll need the round-trip distance to the theater and your average miles driven per month. Divide round-trip-mileage by total-monthly-mileage to get a percentage of the total. Then figure out the portion of the car payment, insurance, auto club, repairs and oil changes, car washes and whatever else your car needs each month that gets used by that trip to the movies.
6. Figure out how much it costs to run your household for a month. This can be an eye-opener for Mom and Dad too! Sit down with your teen and one month’s stack of bills. Start by estimating how much is spent every thirty days. It helps to break this down into categories, like rent or mortgage, insurance of every sort, utilities, groceries, gasoline and so on. Then break out the calculator or a spreadsheet program and add everything up. How close was the estimate?
7. Go apartment shopping. Not for real, of course. But if your child were to move out on his own, what would he look for in an apartment and how much would that cost? Take a Sunday afternoon or two to actually visit apartment complexes after reading their advertisements in the newspaper or online. You can do this same exercise with other big purchases, if your kid is more interested in those: a big wedding, a trip to Europe, a new car, four years at a top-tier college.

Every teen needs to know how money is earned and where it all goes. Teaching this now, before your kid goes off on his own, is an idea that will pay dividends in the future.

© 2012, Patricia Nan Anderson. All rights reserved.