There are many life skills that your teen needs before heading off to college. Hopefully you’ve already spoken to them about understanding your finances and affordable colleges, but something else you mustn’t forget is making sure they have a sense of their own financial situation. And considering most of them will be on their own and far away from home soon, financial literacy is arguably the most important of all of those skills that we need to teach them.
A study done by EverFi found that, most of the incoming students surveyed struggled to answer basic financial literacy questions, and on average only answered two of six questions correctly. The study also found that 40 percent of four-year students and 45 percent of students attending a two-year program had taken a personal finance course. Only 62 percent of those surveyed reported that they stopped spending when resources were low and 25 percent made purchases to improve their mood.
These statistics prove that most parents and schools are failing to teach teens about money and the most basic financial skills. There are four areas to focus on when teaching your child financial literacy: budgeting, banking, credit card usage, and school loans.
Sit down with your child before they head off to college and help them come up with a budget. Budget for monthly income (job, money from parents, and leftover financial aid/school loans) versus anticipated monthly expenses. During this process it is important to make clear what expenses you are willing to help your child with and what you are not. It is very important that you are both on the same page. Teach your child how to “shop smart” and look for deals, buy used textbooks whenever possible, how to hunt for sales, use coupons, and encourage them to use their student discount when and where possible. Teach them the difference between wants and needs when budgeting and the importance of not comparing what they have to what others have.
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Your child should know the basics of banking and building credit. There are many banks where a checking and savings account can be started (with parental permission) for children and teens. If they haven’t already had an account of their own, help them open a bank account that has a branch near campus. It will be ideal if they could have both a savings and checking account. Teach them where they can use their ATM card without getting a fee, how to balance a checkbook, and how to access their account online or via phone banking. They should regularly monitor their bank accounts and any credit card accounts for fraud and know what to do if they find any fraudulent charges on their accounts. When you figure out their budget, make sure they include a set amount of money to save every month. Now is the best time to get your child into the habit of saving. Once the habit is formed they will most likely continue to save money.
Your teen probably sees you using your credit card often, but never sees the bill or the payments that are made. It is important for him/her to understand the differences between debit and credit cards. Many teens don’t understand the benefit of making more than the minimum payment or completely paying the card off every month and can end up in a large amount of debt when the interest piles on. Teach them what their credit limit means and what will happen if they go over their credit limit. Make sure they are familiar with what fees can come with a credit card (annual fee, finance charge, late payment fee, and cash advance fee).
Student Loan Debt
Explain the loan process and how it works to you child. It should be made clear to them how much you are paying for their college (if any at all), how much they will be responsible for, and how much they will end up with in debt when they graduate from college. They should know what they can expect to pay monthly on their loans when finishing school, so this does not come as a surprise or shock when they are done. They should also know about how much money they can expect to make in their prospective career, so they can be prepared for the type of lifestyle they will need to live once graduating college.
Providing your child with this information before going to college will help them become independent money managers. This is their time to learn how to do for themselves without their parents hovering over them. However, it is reasonable to check in at the end of the first month of college and make sure the budget that was established is sufficient and that there are no expenses that were unaccounted for. Make sure your child knows that if things were to start to go wrong with their money that they can come to you and you will not fix the problem for them, but you will help to guide them into finding an appropriate solution.
According to CreditDonkey.com 28 percent of college students drop out before their Sophomore year. This is a big number! Teaching your kids these basic money management skills before going off to college will help them become self-sufficient and confident. In turn, they will have a better chance at succeeding and reaching their goals.
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By Holli Shaw, the founder of ParentalSpace a Parenting and Lifestyle Blog and Community. Holli is a wife and mom of two boys. She received her BA in Psychology and has worked in the background check industry for 15 years.