Grappling with money questions is a normal part of growing up. Suddenly you’re expected to manage your own cash and make money decisions that you’ve never had to make before. For a teenager, even the question of how much to give a friend for their bat or bar mitzvah can be an intimidating one. It’s just one of the many money questions that start coming up for young people as they move through their teen and young adult years. Discussing an appropriate bat or bar mitzvah gift amount can be the opening parents need to start having some other conversations around money.
How Much Should I Give for a Bar Mitzvah Gift?
With most money-giving occasions, you might pick a round number like $100 or $500 to put on the check. For a bar or bat mitzvah, it’s common to give an amount that’s a multiple of 18. In Jewish tradition, the number 18 symbolizes “chai,” Hebrew for “life.” Giving an amount that’s a multiple of 18 is a way of symbolically gifting a long and happy life to the young person of honor.
How to Consider an Appropriate Bar Mitzvah Gift Amount
For a teen who’s attending a peer’s bar or bat mitzvah, $36, $54 or $72 are all pretty standard bar mitzvah gift amounts. Exactly how much a young person decides to give will generally reflect their financial means and how close they are to the guest of honor.
For adult guests trying to determine an appropriate bar mitzvah gift amount, one potentially useful rule of thumb says to consider what you would spend on an ordinary birthday gift and multiply that by 1.5. That might mean giving $250 to $500 per person for a close relative, or somewhere between $100 and $200 per person for the child of an acquaintance—always rounding up to the nearest multiple of 18, of course.
Keep in mind that tucking cash into the card isn’t the only way to make this gift. Another way to honor the bar or bat mitzvah of a relative or close loved one is to contribute to a 529 plan or other investment account in the child’s name, if the parents have established one. (In certain cases, taxpayers may deduct their 529 contributions to minimize their tax burden—talk to your tax planner to determine the most tax-advantaged way to make a significant bar mitzvah gift. Don’t worry about gift taxes unless you’re giving a substantial gift of $15,000 or more.)
More Money Questions for Young People
As soon as kids start earning and handling their own money (like birthday gifts or summer job earnings), it’s time to start having some important conversations about money. Here are some of the money questions that young people should be asking, and conversations that should be happening in any family with teens or young adults.
What kind of accounts can I open? Until the age of 18, a minor needs an adult’s help to open most kinds of financial accounts. There are still plenty of options available. In addition to basic savings accounts, teens can contribute to their own education savings accounts to save for college and/or other future pursuits. Minors can even contribute to their own IRAs. State laws affect how minors can use certain kinds of accounts, so parents should speak to a financial planner about the best way to help their kids save.
What’s the best way to invest my money? Young people may think of investing as something that’s only for older people with careers and a lot of disposable income. In fact, even teens may be able to grow their money through investments, if their parents open custodial accounts. Young working adults may want to focus on accumulating some savings first, then start investing in a traditional or Roth IRA and explore other investment options. Stocks may appeal to young investors, who can generally afford to take some financial risks; if an 18-year-old takes a chance on a risky stock and it tanks, they have decades of working years left to recover and reinvest.
How does compound interest work? When you control your own money for the first time, it’s hard to see the bigger financial picture. Spending that cash now is more appealing than saving it for “someday.” Understanding how compound interest works may help young people grasp the long-term power of saving money starting now. Once you see how much interest your interest can earn, it’s less tempting to pull cash out of the bank.
Parents can use the 10 vs. 30 principle to illustrate the power of compound interest. Our video about the 10 vs. 30 principle demonstrates how one worker who invests $60,000 over 10 years can end up with more money at 65 than someone who invests $180,000 over 30 years. By investing early in her career, the first worker in this example gives her money time to grow and for interest to be compounded.
What should I know about taxes? As soon as you start earning an income, you start owing taxes—so even teens with their first jobs need to understand how taxes work. Young people should know how much will be deducted from each paycheck for taxes, whether or not they need to file tax returns and how tax brackets work. There’s a lot more for young people to know about taxes as they start working and earning more money, but these are good questions to start with.
What are some money mistakes I should avoid? Too many young people learn the hard way about the crushing burden of credit card debt. They’re excited to have what seems like “free” money and overspend without thinking of the consequences. Any young person getting their first credit card should understand how credit card interest accumulates, and how carrying significant debt can lower your credit score. (It’s also important to understand how using credit cards responsibly can help you build credit.) Taking on too much student loan debt can also be a financial burden that follows young people into their 30s and beyond. Paying for college is a conversation that should involve the student, their parents and the family financial planner.
Failing to budget is another really common money mistake for young people. When you know exactly how much money you have and how much your expenses are, it becomes harder to justify the impulse buys that drain so many people’s accounts. Knowing how to budget is one of the most important money skills that any young person should learn.
At Sachetta Callahan, we know that your financial decisions are about more than just growing your wealth—they’re about protecting your family’s future. As you work on giving your kids the tools they need to make good choices around money, we’re always here to help and advise. Do you have any questions about gift giving or money management for young people? Contact me today!
Michael J Callahan, CPA, CFP®, MST, Partner, Director- Wealth Management is a Certified Financial Planner™ practitioner, Certified Public Accountant, and holds a Master’s Degree in Taxation from Bentley University. Mike has been involved in personal financial planning, as well as both business and individual taxation for more than 15 years.
