In a couple of weeks, parents will be sending their teenagers (or young adults) off to college for the very first time. Some will be living on campus and away from home for the first time. Today, I have a guest poster, Audra Barrick, from Rediscovering Domesticity, who is going to share some great financial tips for parents to arm their college bound students with.
As parents, we keep hearing how we need to make sure our children know things earlier and earlier. How they should know how to read before kindergarten. How they should know the birds and the bees before third grade. How they should be able to do their laundry by age 12.
While these may be great goals, it can be overwhelming for us parents to keep up with what all our children should know and when. Thankfully, our children won't be "ruined" if we don't meet every said goal.
I present you today with five things teenagers should know before going to college. The earlier these concepts are introduced, the better, but even if you already have teens in college, they can benefit! It's never too late to start saving money.
- Balance a Checkbook. Ideally, teens should learn how to balance a checkbook around age 16. To best prepare your teen to be responsible with money, help him open a checking and savings account, set a plan together regarding the use of the money, and give him the responsibility of making the deposits (hopefully of money he has earned on his own) and withdrawals. Help him learn that money is not endless. Don't be afraid to let him make mistakes - mistakes will help him learn! If he runs out of money, let him experience the reality of life without money (within reason - still feed him!). In addition to recording all checks written, make sure your teen makes a habit of recording all ATM and debit transactions. There is no easier way to become overdrawn than by not keeping track of all the outgoing money. Trust me. I've done it. It's not fun!
- The Reality of Credit Cards. It is a myth that credit cards are needed to build good credit. Sure, some lenders seem to require this history, but many can be convinced to overlook it if the applicant can demonstrate a history of paying regular bills on time or early every month. If your teen will have a credit card, make sure he knows how the interest works, that he needs to pay off the balance each month (or at least pay significantly more than the minimum balance), and that missing payments has serious consequences. Help him understand that there will be credit card "vultures" all over campus offering easy credit at every turn for a free hat or a free pizza just for signing up. Each sign-up will put a ding in his credit and cause him to have higher interest rates for years to come.
- Stick to a Spending Plan. Spending Plan is also known as a Budget, but without all the negative connotations. One crucial skill developed during the college years is the skill of planning and organizing for the future. Students learn to plan for upcoming projects, for homework, and for final exams. How helpful would it be for our children to learn to plan for upcoming expenditures? Give every dollar a name and a job before the paycheck comes in. As a bonus - learning to stick to a spending plan helps our teens learn responsibility and delayed gratification in many other areas as well!
- Live on less than you make (or less than you have). It is good for teens to learn the key to financial success early - live on less than you make. Have an eye to the future. My first year in college, I was so excited to have more than $1000 in my checking account. That was more than I had ever had before. I was certain that would last me all four years! (Ha Ha!) Thanks to a desire to not eat off my meal plan that was already paid for, I decimated that account in just one semester. Those little things really add up - pizza, clothes, pizza, oh - and did I say pizza?
- Set some money aside. School loans allow up to six months after graduation to begin repayment (check your specific loan for details) and when that repayment date comes, it can be quite a shock. Teach your teen to get into the habit of setting aside 10% and not touching it except in an emergency (which doesn't mean that cute pair of shoes). My favorite rule of thumb is to set aside 10% for saving, 10% for giving, and the rest for spending.
It can be overwhelming to our children to be out on their own for the first time. Arm them with practice ahead of time; arm them with your family values; arm them with your love. Sure, they'll make mistakes, but they will fare much better than their peers who did not have practice ahead of time!