Teaching Your College Student About Money
So you’re sending your first child off to college. I must say, congratulations. It’s painful to see them grow up so fast and leave home for the first time, but you put a lot of trust in the fact that you raised them correctly and have prepared them for this experience in every possible way.
But how is your kid with money? Is he/she prepared to live on a budget? Do they even know what a budget is? Have you prepared them with all of the knowledge about money as you have the knowledge about life? If you haven’t, fear not. I’m here to help you. Here are some easy ways to teach your student about money before sending them off to college.
Talk About It
Surprise! The best thing you can do with your child is to talk about money. Try to start this at an early age, but if they’re graduating high school this year, it’s still not too late. Make sure they understand how money works, and most importantly, what happens when the money supply runs out.
Let your child in on your own financial situation. Teach them about what problems may arise, how to deal with them, and let them know that you’ll be there to help. That doesn’t, though, mean that you’ll jump in and pay the bills when money runs out or send more money to your child. Let them know that you’ll help them work out any financial situations that they may find themselves in while away, but mostly, make sure they’re prepared for whatever may arise.
Create a Budget
Teaching your child how to create (and stay on) a budget can be one of the most challenging parts of teaching them about money. Explain to your child that there will be a certain amount of money that you’ll budget for things you need, and a different amount for things you want. Make sure you explain the difference.
Needs are things like bills, food, and school supplies. Wants are things like money for going to the movies, shopping, and out to eat. It’s OK if you have to give your child a monthly budget for their needs while they’re away at college, but set that budget, and don’t budge if they go over that amount.
Explain to your child that when they go over the budget, they then have to figure out a way to either bring more money in, or they’ll have to reduce their costs of living.
The goal here is to make sure your child doesn’t just take a lump sum of money that they have every month and watch as it goes down with every purchase they make. By planning out what they will have to spend their money on every month, they’ll also learn how much they have to do the more fun things with.
Make a written budget with your child before he/she goes to college. Plan out how much they’ll need to spend on their necessity items and write it down. Or if you prefer, keep track of it online, using a site like Mint.com or something similar. This way, when they go over the budget and start asking for money, you can go online or pull out your document, go over it with your child, and figure out where they went wrong.
Teach Them About Bills
Many adults will often forget that their child has no idea what it means to have to pay bills when they leave for college. And while they may not have to worry about it for the first year or two while they’re living on campus, it’s still something they should have knowledge of before heading off to school.
Now that you’ve created a budget with your child, explain to them what kinds of expenses usually constitute “bills” (rent, electricity, hot water, heat, cable, etc.). Factor that into your child’s budget plans.
For an easy way to really teach them how to budget, how about giving them a bill to pay on their own before they head off to school? Does your child have a cell phone? Does it have a data plan? My daughter started paying her own data plan (an average of $30/month) on her cell phone as a lesson in paying bills when she was still in high school. Have your child either pay part of their own cell phone bill or even the whole thing if you think they can afford it in their budget.
Credit Cards
What dangerous pieces of plastic we all know these little demons can become. Teaching your child about credit cards and debt early can be key to their future financial success.
Explain APR, and the fact that if they have a credit card and don’t pay it off in full every month, they could end up paying way more wasted money in interest than if they just spent the money to pay it off. Make sure they know the dangers they could face if they run up their credit card too high.
All of that said, letting your child have a credit card isn’t exactly a bad idea. You, as a parent, can co-sign on a credit card so that you have access to statements and balances, as well, to monitor your child’s use of said credit card. Choose one that has a low limit to start, and explain to your child that it should be used only in emergencies, and that you’ll be able to see if they are randomly spending and making impulse charges to it.
Having your child sign up for a credit card can actually further press the theory of budgeting, too. If they use their card at all, they’ll have to budget themselves enough money for that month to pay it off in full, so the benefits, really, are twofold.
Impulse Buying
Wow, how do you teach this one to your child when it’s something you’re likely still struggling with yourself? For starters, go shopping with your child and observe how they react when they see something that they like and wish to buy. Do they get overly excited? Do they start moving quickly and does it seem like their reflexes are increased, as if their heart rate has skyrocketed? Do they start breathing heavier at all?
As silly as some of these may sound, these are all tell-tale signs of a compulsive impulse shopper. If you think your kids may react on impulse to making purchases, make sure you teach them how to stop and think before buying. Start with the 30-minute rule: if your child sees something they like when they’re shopping, walk away from it. If they still think they want it 30 minutes later, let them consider buying it and fitting it into their budget.
Some young adults will be harder to deal with if they’re an impulse buyer. You may need to implement the 30-day rule: walk away from something you want to purchase, and if in 30 days from then, you still want to buy it, go ahead and work it into your budget.
The Importance of Savings
Teaching your kids as early as possible how important it is to save and plan for the future is probably the best thing you can teach them. This tactic is best taught as early as possible – maybe you start giving your kids an allowance of $5 or $10 per week when they’re young and teach them that if they save their money for enough weeks, they’ll be able to buy the toy that they have their eyes on.
If your kids are now young adults, though, of course it’s never too late. This is when you can take the opportunity to explain concepts like saving for college, a wedding, a house someday, kids of their own, and even retirement way down the road. Teach them the immediate benefits, as well – if they run out of money when they are off at college and are in an emergency situation, instead of using a credit card, they can dip into their savings a bit. Make sure you stress that it’s important to replenish whatever savings you use, though, and continue adding to the total.
Make sure your kids know about setting financial goals for themselves. If they want to buy a car while they’re in college, they have to save enough money to be able to afford the down payment and the monthly payments that follow. All of this is possible as long as your child or young adult learns the value of saving.
Educate Yourself
The best way to teach your kids about money is to actually know what you’re talking about yourself and know the best things to teach them. Simple as that.
If you are in good financial standing, your kids will notice. If you’re struggling with debt, use it as an opportunity to teach your kids the dangers of credit cards.
Do some research on the best ways to talk to your kids about money and how to approach certain financial situations. Have a strategy, plan it out, and execute, and your kids will thank you for it later.
The only thing you can do now is hope that what you’ve taught your kids about money will help them get through college and beyond. The knowledge that you share with them on financial matters can help shape their financial futures, so make sure you prepare them with the right tools.
Byline: Krista Sampson is a financial adviser at banks in Clifton Park NY and is also a mother of 2. Both of her children know how money works and how important it is to their futures, and she hopes that your kids will learn the same!
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