Money Management for College
It’s hard to imagine there being an upside to the recession, but it does present a great opportunity for parents to teach children about the importance of healthy money management skills. Even kids in elementary school can benefit from an allowance system that includes keeping track of spending and planning for future purchases.
But teenagers in particular are on the cusp of one of the most vulnerable times in their lives — the period after they graduate from high school and head for college or go out into the workforce. It’s crucial that teens learn how to be financially responsible before they leave home to avoid making common mistakes, such as racking up high-interest credit card debt.
Market researchers have found that teenagers who have part-time jobs have an average of $100 per week of disposable income. And despite the recession and parents curbing spending, most teens are not saving a significant portion of their earnings. Researchers also have found that most teenagers receive little or no education from their parents about how credit cards work.
Here are some tips to help you set up your teen to be a successful money manager:
• Set a precedent by demonstrating fiscally responsible behavior yourself. Take your teen shopping with you and model good consumer behavior. Compare prices together, demonstrate the benefits of using coupons and discuss strategies, like waiting for clothing sales at the end of each season to stock up for the following year.
• Be transparent about your household budget. Once a month, sit down with your teen and ask him to help you pay bills. Most teens are surprised to learn about the expenses related to owning a home, including homeowner’s insurance, for example. Discuss how you juggle expenses so everyone’s needs are met and there’s a little room for fun spending … explaining how doing the yard yourself instead of paying a service helps you afford to pay for a new laptop computer for him or for that summer camp bill.
• Teach the difference between “needs” and “wants.” She wants a new mobile phone with a plan that allows for unlimited text messaging, but she needs a new pair of shoes to be on the track team this spring.
• Open a checking account/savings account for your teen. Older teens should be able to manage the account themselves, but parents should be sure to have their name on the account so they can occasionally monitor spending. Make your child budget for his weekend fun, instead of handing him $20 to spend on Friday night and another $20 for Saturday.
• Assign household jobs. A teen who doesn’t work can benefit from being paid to do tasks at home (and you benefit from getting the help you need!). Set up a list of chores that can be done for varying amounts of money. Say, cutting the grass for $20 or doing his own laundry for $10 a week. Create a system where he has to put half the money in a savings account and can do what he wishes with the rest.
• Don’t overindulge — hold your teen responsible. The biggest ticket item a teen typically desires is a car. Most can’t afford to pay for the vehicle itself, but if she’s working, you may consider requiring her to pay for half of the car insurance bill each month. She definitely should cover the expense of filling up the gas tank herself.
Talking about money isn’t as fun as spending an afternoon at a theme park or a trip to the mall. But it’s an important part of helping teens develop successful life skills that pay dividends far into the future. And remember, your child may one day be taking care of you in your twilight years!