You Don’t Get to Keep All You Make: A Quick Lesson on Paychecks
The first paycheck moment is unforgettable. You’ve done the work, put in the hours, and are expecting a specific amount, only to see that the actual deposit is significantly less. If you’ve ever felt that sting, you know exactly why this lesson is so important. And if your teen hasn’t had their first job yet, they’re in for a big surprise.
That’s why it’s crucial to teach teens about paychecks before they receive one. Many young workers assume their entire wage makes it into their bank account, only to be blindsided by deductions for taxes and other withholdings.
Why Understanding Paychecks Early Matters
The excitement of landing a first job can quickly turn into confusion when that paycheck arrives. Without a solid grasp of taxes and deductions, teens may miscalculate their budgets, spend money they don’t actually have, or feel disheartened by the reality of working life.
Financial preparedness isn’t just about knowing how to make money, it’s about knowing what happens to that money before it reaches your pocket. That’s why Beyond Personal Finance includes a dedicated lesson on paychecks!
Where Does the Money Go? Breaking Down a Paycheck
One of the biggest misconceptions teens have is that their wages belong to them in full. Unfortunately, that’s not how it works. Before they ever see a dime, several deductions are made, including:
Federal Income Tax – The federal government takes a percentage of earnings, with the amount varying based on income level and tax bracket.
State Income Tax – Some states require additional tax deductions, while others do not.
Social Security & Medicare (FICA Taxes) – These mandatory contributions help fund retirement and healthcare benefits.
In Beyond Personal Finance, we break this down in a way that makes sense. Using real-world examples, students learn how to read a paycheck stub, calculate deductions, and understand why these taxes exist. The goal isn’t just to explain the deductions but to help students see the bigger picture and understand how these systems work and why they matter.
How Much Will You Actually Take Home?
Instead of waiting for that first disappointing paycheck, your teen should learn to estimate their net pay before they ever accept a job. A simple paycheck calculator, like this one, can help them see how much they’ll take home after deductions.
Please note on the link that everything below Filing Status should be zero to make things simple.
By working through different scenarios, teens can:
Understand how tax brackets impact earnings
Plan ahead for expenses like gas, car insurance, and savings
Avoid the common pitfall of spending money they don’t actually have
Encouraging teens to run their expected wages through an online paycheck calculator gives them the power to make informed financial decisions early on.
The First Paycheck Reality Check
Imagine this: A teen gets a job at $12 an hour and assumes that, working 20 hours per week, they’ll earn $240. But after taxes and deductions, their paycheck is closer to $190. That’s a major difference!
In Beyond Personal Finance, students go through interactive exercises that allow them to see this for themselves. They estimate earnings, calculate deductions, and adjust their financial expectations accordingly. This hands-on approach ensures that when their first paycheck arrives, they won’t be shocked…they’ll be prepared.
Start the Conversation
Parents, you don’t have to wait for your teen to get a job to introduce these concepts. The earlier you start, the better equipped they’ll be. Here are some practical ways to bring paycheck education into your home:
Show Them a Real Pay Stub – Walk them through your own paycheck and explain the different deductions.
Use a Paycheck Calculator Together – Test out different income levels and see how much take-home pay changes.
Have a Budgeting Discussion – Once they know their net pay, help them think about how they’ll allocate their earnings between saving, spending, and giving.
Give Your Teen a Head Start
If your teen is gearing up for their first job, don’t let them go in blind. Understanding paychecks will help set your teen up for financial success. In this webinar that I recently taught to students across the country, I share some essential info. If you’re a parent looking for a quick, impactful way to teach your teen about paychecks, deductions, and net income, this is the perfect webinar to share with them!
Use these materials as a start to the conversation and check it out here! When they know what to expect, they’re better prepared to make smart money decisions. And that’s a lesson that will last a lifetime.
