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Investing 101

Turn a Menial Summer Gig Into a Roth IRA Nest Egg

I wish I could go back to age 16, but it’s not for any of the reasons you might imagine.

Sure, the youth, the naivete and the freedom of a brand-new driver’s license were all nice. But I also had the vast advantage of time.

You see, that’s the summer I had my first job as a camp counselor.

I couldn’t tell you where that money is now, except that it’s long gone. Probably wasted on iced coffees, frozen yogurts and a new iPod (before touch screens were around).

But if my current boring, financially responsible self could go back and tell “teen me” to do one thing… it would be this.

Now Hiring Gen Z

Teenagers have it so good right now. (That’s what all adults are supposed to say, right?)

Since late spring, many areas have been reopening and recovering from the pandemic. But, as Chief Trends Strategist Matthew Carr wrote recently, the “Great Resignation” has taken hold of the U.S.

Workers aren’t coming back in droves, whether it’s because of favorable unemployment benefits, career changes, the continued state of public health or something else entirely.

But retail stores and restaurants in particular – two areas that can hire teenagers – needed employees… and fast.

Lucky for many businesses, the economic reopening coincided with the end of the school year. It’s often the case that teenagers are eager to find employment, will accept lower wages and don’t need benefits.

At the start of the summer, the unemployment rate for teenagers ages 16 to 19 was at a 70-year low of 9.9%.

That means a record number of teens are receiving real paychecks.

Advice for 16-Year-Old Me

When I got my first job, my mom took me to the closest bank to open a checking account. This was definitely a step in the right direction toward teaching a teen how to keep track of their money.

But – as I mentioned above – I didn’t exactly save that money. It was mine to use for things that I wanted (read: thought I needed) as a 16-year-old.

Even if I had deposited my money in an interest-bearing savings account, the 0.2% earnings on my sub-$2,000 paycheck would be downright negligible.

Looking back, I should have started a Roth IRA.

IRA stands for individual retirement account. And a Roth IRA is a retirement account that puts after-tax dollars to work for the long term.

Contributions and earnings grow tax-free. And the account holder can withdraw money without any taxes or penalties once they reach age 59 1/2.

There’s no age restriction to set up a Roth IRA. And teenagers working your standard summer job will likely not hit the $6,000 contribution limit set by the IRS.

A few important things to note are that your teen would need proof of income (i.e., a legal paper trail) and that contributing to a retirement account would trigger a taxable event. That means your teen would file their own tax return as a dependent.

A Roth IRA is a safe place for teens to start learning about finance and growing their wealth at a young age – before a majority of their peers are even thinking about their golden years.

Once you and your teen consult a tax professional and get the details ironed out, that’s when the fun begins…

Because what’s more fun than establishing smart money habits, right?

Hook ‘Em Young

If your teen is curious or needs some convincing to part with their hard-earned cash, use this handy investment calculator to show them the numbers in black and white.

Using the funds within the account, they can invest in individual stocks, bonds, mutual funds, exchange-traded funds, money market funds, CDs and more.

This is the perfect time to learn that high-risk, trendy or volatile investments are not always the best route.

Rather, a well-diversified portfolio of low-risk options (like bonds), medium-risk options (like blue chips) and high-risk options (like crypto) will be the most rewarding over the long term.

So tell your sons, grandsons, daughters and granddaughters this…

A simple summer gig could turn into hundreds of thousands of dollars if you know how to put your paycheck to good use.

And when they predictably roll their eyes, just say, “You can thank me later.”

Good investing,


P.S. What was your first summer job? And what did you do with your hard-earned dollars? Let me know in the comments!

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