High school graduations are just around the corner and in the past year you’ve likely spent a lot of time helping your child determine their field of study as well as the right college. But have you taken the time to talk to her/him about being financially smart?
For most kids, college marks their first opportunity for managing money. To ensure they get started on the right foot, here are some ways you can prepare your child for this important learning opportunity.
Find a Balance
As a parent, you need to strike a balance between contributing enough money to pay for incidentals and extracurricular activities, and not giving so much that your child doesn’t learn to be financially responsible. You also need to give your child enough space to develop a budget on his or her own without allowing them to fail. How often an allowance is provided and the ability to budget is key for your student’s financial success. Giving your child an allowance each semester or once for the entire school year could be a disaster, even if you provide initial guidance on how to allocate it. A better option might be to transfer funds to your child’s checking account monthly. Starting with smaller steps may help your child better budget his or her allowance.
It’s also important that your child understands what you will pay for (i.e., books, the school’s meal plan, etc.) and what he or she will be responsible for (i.e., laundry, dinners off campus, gas, clothing, spring break travel, etc.). Knowing how the money is to be allocated will help your child establish parameters for expenses.
Hold Firm
This one is tough, but should prove beneficial for everyone long-term. It’s important to let your child experience financial responsibility on his/her own. If you’re asked for guidance, that’s great. Go ahead and give it. However, if your child doesn’t budget correctly and falls short in a given month, you need to try to let him or her deal with the ramifications. Allow your child to figure out how to “get by” until the next deposit hits. Struggling financially during college because of money mismanagement is a lot less consequential than doing so in the “real world.” Your child will learn financial responsibility more quickly when left to deal with their mistakes, rather than being rescued by you.
Skin in the Game
Establish Credit
If you want your child to be financially independent after college graduation, help him or her establish credit during their college years. Your graduate won’t be able to lease an apartment or buy a car without it, which makes transitioning into the “real word” more difficult.The best way to obtain credit for your child is to open a checking or savings account in his or her name as well as a credit card with a low credit limit ($500 to $1,000). In all likelihood your child won’t be able to obtain an unsecured credit card initially. If that’s the case, you could co-sign for him or her or open a secured credit card. Secured credit cards require a security deposit to provide assurance to the creditor that any monies borrowed will be repaid. Typically, the credit limit is the amount of the deposit, or a percentage of it. Unlike a debit card, purchases are not deducted from the deposit amount; instead, they are a “loan” from the creditor and must be repaid. Educate your child about using the credit card responsibly, only charging expenses that he or she is able to pay off each month.
Summary: The Final Exam
It’s likely that you’ll have to “pull some all-nighters” to figure out the best strategy for assisting your child with financial responsibility. Be patient and persistent. All that hard work should “pay off” handsomely in the end. Good luck!
