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Set limits on how teen will spend summer-job cash

Decide how much youth will have to save; minimize tax withholding

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Dear Readers: Every year I'm asked how kids should handle the money they earn from summer jobs, and this time I have a personal stake in the answer: My lifeguard son, John, 17, has taken his first plunge into the labor pool.

John graciously agreed to be used as a guinea pig to test the advice I've given other families over the years. This wisdom has passed the real-world trial, and I'm sticking with it.

Decide with your child in advance how much money he or she will have to save. Even if they're earning minimum wage over the summer, kids will make more money than they can or should spend.

Don't buy their argument that it's their money and they can do what they want with it. You have a right to weigh in.

John didn't have a problem with our rule that he save at least half his earnings. But, understandably, he wanted to know what he was saving for — a senior trip with his high school swim team, or college the following year. We agreed on the trip, because it's a more immediate, achievable goal.

Pay as little as possible in taxes. Teens with summer jobs aren't likely to earn enough to trigger an income-tax obligation from work alone, so minimize withholding. Kids shouldn't have to wait till next spring to get back money they won't owe.

The pool-management company that employs my son tells me that most kids claim zero withholding allowances. But even if they're dependents on their parents' return, they're still permitted one allowance as a single person with one job. Claim it.

In John's case it will mean an extra $8 or so in his pocket every week — not insignificant when you're only making $5.50 an hour.

Because John won't be working a full year, I asked his employer to use the "part-year method" to figure how much tax to withhold; that would have hiked his take-home pay even more. Unfortunately, the pool company, a small outfit, didn't offer that option. But a larger employer might, so ask about it.

Set up a checking account for your child. The local branch of Bank of America where my husband and I have our account was more than willing to open one for John (the banker who helped us told John I was doing an "awesome" thing for him).

While I also had to sign the application because John is under 18, the account will be his, with only his name on the check.

Next: More money-management tips for working teens.

Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, DC 20006. Or send the good doctor an e-mail message (and any other questions for this column) to jbodnar@kiplinger.com