Sending off your teenager to college armed without a thorough knowledge of basic financial principles is not only a parental oversight; it has the potential to be extremely dangerous as well. Countless unsuspecting college students, specifically targeted by credit card companies, leave school with enormous piles of debt and a ruined credit score. If you want your children to start off as informed young adults who can make wise financial decisions once they leave school, be sure to teach them. They won't learn how to manage money in class. Here are a few tips:
- Don't just talk about budgeting. Have them practice budgeting in high school.
The best way to learn any skill, especially when it comes to finances, is through practice. Start teaching your teen budgeting skills by giving them a monthly allowance and having them pay for meals, entertainment, clothing, and other personal expenses. Help them draw up a budget using tools like Mint or BudgetTracker. You can also be old-fashioned and have your child write a budget down. Either way, work together to have your teen adhere to her budget every month.
- Dissuade them from getting credit cards in college, but don't forget to explain why.
Many parents will warn their college-bound teens about credit cards. In my personal experience, my parents simply told me to be careful with credit cards. But as soon as I was approached by a credit company encouraging me to apply for a card, my parents' warnings fell on deaf years as I was taken in by all the promises of credit cards, the rewards, the seemingly free money, etc. And I eventually ended up with tons of credit card debt. Instead of passively warning your teens about credit cards, explain the whole process acquiring a card, the importance of reading the fine print, what a credit card should be used for, etc. Explain how it's better to wait until they leave college, but do note the benefits of these cards in terms of building credit. Just remember that, as the saying goes, knowledge is power.
- If your kid plans on taking out loans to pay for college, make sure they understand what they are getting into.
Very soon if not already, student loan debt in America will overtake credit card debt as the primary source of consumer debt in the country. This has had grave implications not just for individuals but for the economy as a whole. Don't add to the problem by not educating your teens about student loans and how they work. If your teen is still in the college application process, make sure your child chooses a school that requires them to take out a modest amount in loans. Explain to them the repayment process and the consequences of defaulting.
- Don't give in to requests for more money beyond an allotted allowance.
Chances are that when your child goes to college, you'll continue giving them an allowance for personal expenses. College kids are notoriously bad at managing money, especially when they are in an environment in which they have to buy groceries and other personal items on their own for the first time. Many parents will give in when their children call home requesting more money. Even though it may be tough to say no, the only way they'll learn is if they meticulously budget their money so running out of funds won't happen again. If they can't feasibly budget the allowance you send them, encourage them to get a part-time student job to pay for extras.
This guest post is contributed by Lauren Bailey, who regularly writes for accredited online colleges. She welcomes your comments at her email Id: blauren99 @gmail.com.