Many teens who work part time will have the right of a tax refund from overpayment in income taxes. Filing that first tax return can be exciting as getting a larger chunk of money back from the government is always a good thing. However, what should your teen do with that money? Since refunds go out faster and faster these days, now might be the time to sit down with your child and discuss how they will use the refund they get.

Tips that Work at Any Age

If you are getting a tax refund this year, it may be a good idea to talk to your teen about how you spend the money. Consider some of the options you have:

• You spend it: short and sweet, you use it to have a great weekend, buy something for around the home or you use it to purchase something else you want. After all, it is unexpected income, not in your budget.
• You use this chunk of extra money to pay down debt. You know that paying off a credit card or putting the money towards a car loan will save you money in the long term.
• You stash the money away in a savings account for a rainy day. You never know when you might need some extra money to pay for an unexpected emergency.
• You put the funds away to start a sinking fund for a larger expense you might have in the future, such as investing in home improvements, a new vehicle or college costs.
• You put the funds into an investment where it not only will be available to you but also will grow for you over time.
• You give some or all of it away to charity. It is something you believe in doing.

The good news is that any of the above options is a good choice, if it is the right one for you. The same is true for your teen or college age student. They need to make a decision about what to do with these funds on their own. In addition, they have the same options you have.

Encouraging Good Decisions

Perhaps you have a college aged child or an older teen. They have accumulated a significant refund. Before they spend it, sit down with them and have a conversation about the money. This is a conversation we have had recently.

After talking about a tax refund as well as what it means; we talked about our options, both my child’s and my own, because I wanted him to know that I, too, had to make the right decision. Here are some of the important points you might want to make with your child, too.

• It is not free money. This money, like any other paycheck, is money that comes from hard work. It took a year to earn it.
• Spending some extra money on ourselves is just fine, especially when doing so betters our lives. My son wanted to upgrade his computer to have better connectivity.
• Making the money work is sometimes the best option in the end. At least some of the money needed to go to investments that would help the money to grow. Savings accounts, Certificate of Deposits or even retirement planning were options we discussed.
• Putting money aside for college or a new vehicle was a good option, too, especially since this would make it easier to buy textbooks or to pay for meals away from home.
• Paying down debt makes the best sense. If a credit card has a balance of $400, for example, with an interest rate of 10 percent (and many more are much higher), it makes better sense to pay off this amount than to put the money into a savings account earning 1 percent. We used an example to show how simple this savings could be.

At the end of the day, what your child does with his tax return is up to him. However, by giving your child options, you put him or her in more control of the way they use their money.

Once your teen gets his or her first job, tax time adds a new level of tax frustration for some parents. Each situation is different, but it becomes critical for parents to reach out to teens to ensure they know what taxes are and how to file them.

This recently became the topic in our home as a first W-2 arrived in the mail. After the, “Wow, look at how much money I made” and then the, “What did I spend that much money on?” comments, it was time to talk about the taxes.

Explaining Income Taxes to Children

Even young children have some sense of taxes, especially if you allow them to walk through the checkout line to pay for their own toy. However, as children start working, income tax appears. Explain to your child what income taxes are (you likely have had to answer this question after your teen realized that he or she did not receive all of the money they thought they would on their first paycheck!)

Under IRS laws, if your teen makes over a certain amount of money in a year, he will need to file income tax returns and he will need to pay taxes on that income. To check what this level is visit the IRS website since it can change year to year.

You may wish to talk about:

• Investments, capital gains and interest to be reported as income by your teen
• Any employment income needs to be reported, usually through a W-2
• Money from babysitting, mowing lawns or other independent contractor jobs needs to be reported, especially if it is over $400 per year

Where does this money go? To answer this question, explain taxes as well as how the federal, state and local governments operate because of taxes.

• These taxes are to pay for services such as improving highways and road systems.
• They are to support the military.
• The funds are for police and fire personnel.
• The funds are to help support foreign governments.
• The tax money pays for space exploration, environmental studies and, in some cases, schools.

Although no one likes to pay taxes, it is important to explain to kids that taxes are necessary in our current government system. When they understand what they are paying for, they can better get a grasp on some of today’s most important government policies. To teach the tax process, turn on the news and watch any of the debates in Congress about health care reform, spending, deficits and foreign aid. This is an ideal way to teach your child about not only his or her taxes, but how he has the right to a view since the money he earned is going towards paying for these policies.

Preparing Taxes

Once your child understands what taxes are, the next step in the process is completing an IRS tax return. Your state likely requires you to file a return, too and some local governments have income tax requirements. Explain this to your child. Then, explain that employers and others who pay us report that information to the government. By filing a tax return, we show the government how much we have earned, what our fair share of taxes is, and we determine if it balances.

Who will do your teen’s taxes?

• You could do them yourself since they may be straightforward.
• You may wish to include them with your own taxes with your tax preparer (though your child’s taxes need filed independently from your own.)
• You could instruct your teen to do them on their own, though if you go this route, you may want to watch over their shoulder.
• Tax software may or may not be necessary here. You may find free programs that could work for your teen, if you want to go that route.

If your teen were a math wiz, it would be beneficial for you to sit down with them, W-2 in hand, and work through the IRS tax booklets to learn about the process. Since most of his or her income will be from a job, the process is likely to be straightforward.

The bottom line is simple: your teen has a job and may need to pay taxes. Use this as a teaching moment for them, so that they can learn what taxes are and how to file their own.

I often wonder if I have the letters “ATM” stamped on my forehead. It seems that over the course of a few days, I am handing out money on a regular basis. We do need to spend money, but there are ways to cut down on the costs you have.

It is critical to talk to your kids about the ways that money is spent. There are often small things that we purchase on a day-to-day basis we do not think about, but they do add up. Challenge your kids to find ways they can save money without feeling the pinch. This can be a fun challenge for your family to do together.

Each person can easily keep a small notebook or binder to carry with him or her. Whenever they find themselves reaching for a dollar or making a small purchase, encourage them to forgo the purchase and instead write down the amount they would have spent in their notebook.

Where Your Money Is Going

Where is your money going? If you are the type of person that has a budget laid out at the beginning of the month but you cannot figure out why it does not match up, it is in small things that you are losing money. However, the question is where.

Here are some easy, often times unnoticeable ways that you can save hundreds of dollars per month.

1. Stopping for coffee: If you stop at McDonald’s for a cup of coffee each day, five days per week, that amounts to between $10 and $20 per week or $40 to $80 per month. If you add something to that, it is even more.
2. Extra snack in the checkout aisle: Just spending a few dollars on a candy bar or a bag of chips really does add up, especially if you do this often, or for each person you are with. That bottle of soda and a candy bar may cost as much as $5 per person.
3. Eating out: This is a topic no one likes to hear about, but if you stay in for dinner just one time more often per week, you could save between $40 and $80 per week doing so, depending on the size of your family and the amount you normally spend. If you go out to dinner three times per week, cut down to two to see a great improvement in your budget.
4. The electric and gas bill: Turn down your thermostat in the winter to 66 to 68 degrees and you are likely to see a substantial improvement in your monthly bill, as much as $50 to $100 depending on how much you use it. If you are chilly, wear a sweater. The same is true in the summer. Raise the thermostat to 74 to 76 degrees instead.
5. Bag the lunch: At some schools, like our own, kids pre purchase lunches by ordering from a menu. It may seem like just $2 to $4 per day, but when you add this up over the course of the month, plus multiply it by the number of kids you have, it really adds up! A well planned out brown-bagged lunch instead may cost a fraction of what you are already spending, especially if you get creative.
6. Extras at the store. Ask your kids about this one if they shop on their own from time to time. How many items do you pick up and put into your shopping cart that are extras? An extra would be anything that is not on your shopping list you add after arriving at the store that is not part of your menu. This is often an easy way to save hundreds of dollars each month for some families.
7. Picking up snacks at the gas station: I like to use my debit card at the pump so I am not tempted to go into the actual convenient store as I end up picking a few things up as I do so. Ask your kids if they do the same, if they are filling up their car with gas. Chances are good this is a good way to save a few dollars at each fill up.
8. Drinks at school and work: How much does a bottle of soda cost at your child’s school? How many times per day do they purchase that soda to drink while in class? How about work situations where taking a bottle of juice, water, soda or something else to work with you adds up to several dollars per day. Just like the coffee on the way to work, this is an easy way to save money. Bring a bottle of something from home, rather than out of a machine. You will save half, if not more.
9. Rent instead of go to the movies: Have you seen the cost of a movie ticket today? My kids love to watch movies but we rarely go to a theater to do so. After factoring in the cost of the ticket, popcorn and sodas, the cost can be as much as $15 to $20 per person. However, you can rent a movie for a dollar at some places or even head to the library. Make some popcorn at home and have a family night for less than $5.
10. Club hopping is expensive: Some teens love to go to the clubs, for dancing and for just hanging with their friends. The clubs make a big profit from charging entrance fees, sometimes as much as $10 to $20 or more per person. Teens often go from one club to the next on the same night. As you can imagine, this is an expensive way to hang out with your friends.

What is your expense? What are you spending money on you know you do not need to? Challenge your kids to avoid these expenses for a week or a month. Then, take that saved money and invest it.

It is so easy for the average 18 year old to get credit today. Walk into any college campus and there are tables lined up with individuals encouraging our kids to sign up for a credit card. As I walked through the community center in one school, I was astonished at just how aggressive some of these companies can be when it comes to getting new sign ups.

As I drove home, I wondered, how could I teach my children that a credit score is vitally important to far more than just getting that credit card? Not only do these credit card lenders use them, but also they are large elements of everyday life for most people. Everyone from your insurance agent to your potential employer could use your credit score to determine if they will work with you. As I thought further about this, I realized that there simply was too many future investments riding on the coattails of the decisions my kids could be making now and in the next few years.

Talking to the Kids about Credit Scores

I decided it was important enough to talk to my kids about this sooner rather than later. What I wanted to find out is what they already knew about credit scores and what they were lacking in knowledge. I brought up the topic of borrowing money. In order to help get the conversation going, start out by asking your kids a few key questions.
What do you know about your ability to borrow money?

The goal here is to determine if your children even know about credit scores and the value of them. Your children may bring up a variety of other important factors too, such as having a job and enough money to pay the monthly bill. However, zone in on the credit score.

Credit scoring helps lenders determine if they should extend credit to the individual, based on the amount of risk the individual poses to the lender. The credit score is comprised of a variety of factors, including the way that you pay bills, the amount of debt you have and the types of debt you have. The combination of your credit usage experience is placed into a complex algorithm that determines what your experience looks like in a number form.

Who uses credit scores?

Once you have established what credit scores are and how they relate to an individual, the next step is to educate your child about who will use this score to make decisions about them. It is often easy to see that lenders are going to use credit scores. To buy a car or to buy a home, you need to have a good credit score, after all. Be sure they are able to correlate the benefit of having a high credit score and getting the right loan (lower interest rates and easier acceptability.)

However, others use this credit score, too. Ask your child if they have any idea who else is able to get a copy of your credit report detailing your credit use and who can use a credit score to make decisions about whether or not to work with them. They may be surprised to learn that more than just lenders use them.

One example that they may not know about is insurance agencies. When you purchase a vehicle, the insurance company is likely to pull a credit report and they will use your credit score to determine if they should provide a policy. Insurance companies often call this a credit based insurance score or insurance scores, but it is very similar if not the same as your credit score. The insurance companies use this information to determine how likely it is that the insured individual will file an insurance claim and the amount of that claim.

In addition, employers sometimes use credit scores, too. There is some controversy over whether or not employers should use credit scores as a tool to determine if they should hire someone, but many do so through the background check. The logic here is simple. If you are having trouble managing your credit use, you may have trouble managing the business’s money or lack responsibility.

It is amazing just how vital a credit score can be, even to those who never actually fill out that application in their student lounge of their college campus or answer the emails they get.

For more information regarding credit scores and your rights, visit the Federal Trade Commission, or FTC’s website at www.FTC.gov.

Today’s teens are all about saving the environment and I am all for that. We do as much as we can by recycling, using environmentally safe products in our homes and we conserve energy. However, the next logical step in the process is to buy a hybrid car. A hybrid car is one that has two types of engines in it that work together to reduce the amount of precious fossil fuels used.

Hybrid vehicles have an electric motor assisted by a standard gas powered engine. Hybrids get good gas mileage because they need far less gas to run since the electric motor does most of the work. I was intrigued with the opportunities that were possible and decided to start looking into some of these vehicles in the hopes of purchasing one.

The bottom line is that most people want an affordable vehicle, one that provides you with reliability and gas mileage is important. It is critical to teach your kids how to buy an affordable car, especially with the average sales representatives willing to sell them the most expensive vehicle on the lot.

How to Save on Hybrids

No matter if, you are buying a hybrid or you are teaching your kids how to buy one, the following are some of the most important characteristics to look for in these vehicles. You can save with hybrids, but you do need to know what to look for and how it will help you save money either on the purchase price or in the long-term use of the vehicle.

1. Do your research before heading to the dealership. Learn which of the latest makes and models have been rated as the best available. Use third party websites and research companies to help you to determine this.
2. Learn about gas mileage. Each hybrid is unique in terms of how much gas it can save you. Newer models are improving in gas mileage even more than those hybrids out just a few years ago. However, you do want to compare the fuel economy of each of the vehicles. The United States Department of Energy provides fuel economy ratings on their website, www.fueleconomy.gov.
3. Check for tax deductions. This deduction may be in place for the next few months or longer if extended. Hybrid vehicles purchased after December 2005 are eligible for up to a $3400 income tax rebate. However, these rebates are limited.
4. Get a great loan if you are financing the vehicle. Even though you can save a few thousand dollars here and there, you will save much more by purchasing a vehicle loan that is a few percentage points lower. Be sure you focus on putting as much down as possible on the purchase.
5. Shop around. Hybrids are becoming more popular with car manufacturers. There are now SUV’s down to economy sized vehicles on the market from many of the top car manufacturers in the world to choose from. This also means that the average city will have numerous dealerships available to shop at.

Teaching Your Kids to Save at the Dealership

Even if you are purchasing a hybrid vehicle for yourself, bring along the kids. This is the perfect opportunity to see you save some money and to get the best deal. One of the first things you should do is to negotiate down the price as much as possible. Know what the competition is selling the vehicle for and ask for a lower price.

Teach your kids how to get a good price for your trade in, too. To do this, research the value of the car in advance, in the condition it is in. It may be better to try to sell this vehicle on your own, if you can do so, since trade in costs are often far less than what you can get if you sold it yourself.

As mentioned, be aware that the car dealership is not necessarily the best place to get the lowest priced car loan. In fact, you are likely to find a better loan price at your credit union or other financial institution. Find a credit union near you.

Each of these steps is a lesson that your children should be part of. After all, they will have to buy their own vehicle at some point.