I don't know anything about how it affects college savings, so I can't give advice on that

But in my eyes the this is a great teaching/learning opportunity.

A teen left on their own with $5k spending money is going to start some bad habits. That's where you come in.

Start teaching them about fiscal responsibility. That's what my father did with me and that really set me up for life as an adult. Not just: "You should do this", but rather actually sit down with them and do all those scary adult things with them.

My father was priming me for fiscal responsiblity since I was super young, with savings accounts, offering for me to do research and pick a stock where I could keep any profits once I sell, and he'd absorb any losses. All the way to opening a custodial Vanguard account for me all before I was 18.

What would you do if you were completely debt free, had steady income, had your emergency fund setup, are already contributing the max to your retirement accounts... and you all of a sudden ou get a $5k after-tax bonus from work?

Probably save it in a mutual fund, or a similar investment method? Help your teen do that. Teach them what you'd do. And teach them why you'd do it. That knowledge is worth far more than the $5k. Strike them a deal, give them $1k of fun money to do whatever they want with, but put theo ther $4k into a Vanguard mutual fund or something.