As a mom, I’m learning that “the money talk” with teenagers is about more than money—it’s about family values and recognizing that everyone may not be on the same page.
Bottom line: We can’t resolve our differences until we have the talk.
The teenage years are so important to help our students develop money management skills.
Case in Point 1
Now 18, our daughter lives near us in an apartment, working full-time at a daycare center and finishing high school virtually. While under our roof, she worked part-time jobs and opened a bank account, but she wasn’t exactly fiscally responsible. This is probably because we were paying for all of her needs, and she wasn’t sure what being fiscally responsible meant.
Now living in her own place, our daughter recently surprised us with a financial and education plan of her own: two years of community college while working and then finishing up at a four-year, in-state school.
At first, we were upset that education, our first priority, wasn’t hers. Over time, though, we’ve come to appreciate the upsides of her plan, including her increasingly mature approach to money.
Case in Point 2
Our son. Age 16, he likes to tease me about going to college soon because he knows how much I’m going to miss him.
His disability, mosaic Down syndrome, doesn’t stop him from making honor roll or dreaming about college life. It also doesn’t stop him from arguing when I try to discuss focusing on in-state schools instead of his first choice—basically any school in the vast state of California.
Of course, we need to have “the money talk” with him, but what do we say to a teen who (not atypically) assumes he’ll be a rich, successful YouTuber?
In a special virtual event with Road2College, Jeff Rose, a certified financial planner and founder of the website Good Financial Sense, and Road2College founder Debbie Schwartz, spoke about Money Management Skills for Young Adults. Along with other financial experts, they offered down-to-earth strategies for families.
Here are some of the highlights:
How Much Student Loan Debt Is Okay?
Many students assume it will be easy to pay back their student loan debt. Rose, who in his young adult days maxed out his own student loans and plunged into debt, says if you find yourself in a position where you need to take out exorbitant loans for your child to attend a private college, talk to them about going to a public college instead.
Realism, not prestige, is what builds financial security.
The rule of thumb, says Schwartz, is making sure loans don’t exceed one year of an entry-level salary in your student’s proposed field.
Balance Dreams with Financial Reality
While teens may have some idea of what they want to achieve in life, parents can help by asking them questions and providing information designed to square their dreams within their financial reality:
- What do you want to do?
- What is the entry-level salary for that job?
- Where do you want to live?
- What is the average rent in that city?
- Will you need to go to graduate school? If so, know that higher learning tacks on years of student loan payments.
We can also help by answering some of our own tough questions:
- Will we offer to pay for our child’s education and/or living expenses?
- Can we afford to?
- If our child doesn’t land a first job quickly, will we help support them?
- Can we afford to?
Estimate, Estimate, Estimate
Debbie Schwartz recommends that teens check PayScale to see what salary they might make during their first year out of college. Along with your student, you can estimate how much they’ll need to borrow, and plug it into a student loan calculator. This will provide you with an idea of the number of payments your student will have to make after college, as well as the monthly and cumulative payments, and the total interest.
Be sure to discuss whether they expect to be able to make their monthly payments while living on their entry-level salary.
Keep in mind, it can take almost 20 years to pay off a student loan for a bachelor’s degree.
Should Your Student Get a Credit Card?
As parents, we need to give a little responsibility to get a little back. While credit cards are a risk, Rose explains that young adults need one to prove to lenders that they’re financially responsible. This will be important when it’s time for them to buy a first car or house as well.
Authorizing a teen to use your credit card doesn’t teach them much, since if they overspend, you’re the one who’s liable. So if you go this route, Schwartz advises checking to see if you can manage the authorized user’s access to credit by setting limits on how much your teen can spend on the card.
Co-signing a credit card with them is slightly less risky since the liability works both ways—you’re liable for them, but they’re liable for you, too.
Check Out the “Secured” Card
Rose recommends getting your child a Secured Card. This type of card is considered low risk to the bank because it requires a deposit, usually equal to the credit limit on the card. It does have fees, however, so while anyone can get one, usually it’s a short-term solution.
In an article for Road2College, Schwartz notes that if your child is 18 to 21 years of age, but doesn’t have enough income to support a credit line or doesn’t qualify for a regular credit card, the Secured Card is a good option. Check nerdwallet.com for banks that offer them.
Keep Track of Credit
Mint gives free credit reports, which you can explain to your child is like a “rap sheet” for everything they’ve done financially. To get a decent credit score—i.e., to avoid a bad rap—they need to pay their credit card bills on time, every time.
Budgeting for Young Adults/Teens
In the digital age, money can seem unreal to kids. We receive and pay others through Venmo, PayPal, and other apps, so we seldom see cash leave our hands. With Amazon and groceries offering deliveries to our door, we avoid the entire physical experience of shopping. The concrete transaction of doing business gets obscured and makes it harder for our children to understand the financial impact.
Take First Steps
Most experts say that one of the first steps in teaching young people to be financially literate is introducing them to a bank where they can open a checking and savings account, and learn to monitor their balances online.
Connecting money to time and work also helps young people to see the value of a dollar. So as soon as they’re able, encourage your student to get a part-time job. They’ll earn entrepreneurial and time management skills in addition to income.
Best Ways to Track Spending
Teaching kids to budget, especially in the digital age with so many tools available, can be exciting for them (and you!). Budgeting gives them the power and freedom to spend their own money on what they want most.
Apps like Mint and You Need a Budget (YNAB) bring the power of budgeting to life for many kids.
Mint offers a traditional cash-flow budget plan, based on calculating the money coming in versus the money going out. YNAB has you store cash in separate household envelopes and allows you to track most currencies.
Get the Family Involved
Rose said as soon as he and his family started using Mint, they were able to view graphics on how much they were spending on luxury services like DoorDash, GrubHub, and other takeout delivery services.
The whole family got into it, noting that they soon realized $35 for two cheeseburgers was probably too much.
This awareness is empowering, but it doesn’t come naturally to many college students. Even those who understand how much tuition costs may not think twice about spending money on going out to restaurants (often throwing away the money already in their meal plans).
Road2College cites an Everfi report that only 62% of college students surveyed said they stopped spending when resources were low.
Curb Impulse Spending
Tracking their spending allows students—or anyone—the chance to pause and think before making impulsive decisions. Curbing spending, perhaps foregoing small treats like a daily latte or large ones like a spring break trip to Florida, frees up money to invest for greater returns later.
How to Save Money
Saving money is self-care, a habit that should become as routine as brushing your teeth. Your child can start saving while they live at home, putting money into a savings account, separate from their checking account.
Investopedia.com advises young investors to “pay yourself first” by establishing an emergency fund. A percentage of everything your child makes, even if it’s small, can go into this fund before any other bills are paid or purchases made.
To keep inflation from eating away at the value of your child’s savings, they might wan to consider keeping money in a high-interest online savings, short-term certificate deposit, or money market account.
Make sure the fund allows your child to access the money quickly, however.
Employ the ’20 x Rule’ and Tech
In his talk, Rose stressed the “20 x Rule,” which means whatever your child doesn’t buy today—the $1,000 spring break, for example—can be invested to make 20 times more in the future.
Apps like Robinhood and Acorns allow your young adult to invest small amounts in the stock market. A fun way to stir up interest in saving, these are another example of how technology can be a young person’s budgeting friend.
The Ultimate Goal
Both of my teens want to be “the boss” of their own lives. Who doesn’t? Helping them put a price tag on their dreams, including education and careers, is empowering for the whole family, and brings our son and daughter one step closer to their ultimate goal: achieving financial independence.
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