Random thoughts:
- I think having teens save up for luxury items is a great idea; it's easy to spend Mom's money, whereas it's harder when you realize, "I worked XXX number of hours for this money. Do I really want to hand it over for a single item?" I used to do similar things with my kids; for example, if they needed jeans or shoes, I'd say, "I'm willing to pay X amount. If you want a more expensive brand, you pay the difference."
- I'd talk to her about phone insurance. As an adult, I'd never spend money on single-item insurance (also, as an adult, I could absorb the loss), but consider how devastated she'd be if she worked for 6 months, then broke the iPhone after a week. Insurance should be her choice, but walk her through the pros-and-cons.
- At the same time, you have to tread carefully with a working teen. Take it from a teacher, I've seen jobs work well for teens: teach them responsibility, the value of a dollar, etc. And just as often I've seen jobs go badly for teens: I've seen kids who allowed the job to eclipse their schoolwork. And I've seen kids who decide that "they're grown" because they're providing their own spending money /now they don't need to do things at home, school. And I've seen kids build up crazy spending habits because they have their own money; establishing a save-some /spend-some rule would be wise. Lay down some laws about the job. How many hours per week will you allow? How late on school nights? Discuss how school is still her #1 job. Even if she's working, you're still the big boss. My girls -- especially when they were teens -- always did better when I spelled out my expectations. I'd consider a family contract before you allow her to get a job -- spell out those expectations.
- I agree with an above poster that 16 is too young to make payments on something. Cash on the barrel head ... or no deal. The whole point is teaching about saving. Don't allow shortcuts.
- Phones are -- by an astronomical amount -- the #1 status symbol among teens today. Phones are "more important" to teens than clothes, cars, or anything else. I'm not surprised a 16-year old is hankering for the phone that carries the most status. Sure, some posters here explained their preferences for this-or-that phone, but I doubt a 16-year old has thought beyond, "It's cool".
- Think through this potentially problematic item: If she buys the phone, can you still take it away as a punishment? (Or would that even be your punishment of choice?) Are you still paying the monthly service bill?