At this time of year, children are heading back to school. Many are beginning their Senior high year - excited with the anticipation of activities, college applications, and graduation. For parents, the big question is how the parent will finance their college careers. If you already have the answer, move on to another pressing matter: How do you prepare them to handle their own finances once they leave home?
Teaching your kids to save now is imperative to the success of their financial health. You can lay the foundation, showing them that saving for emergencies and items they need (or want) to purchase - smartphones, cars, and spring break trips - can help keep them out of a bind financially. Start the conversations now, but try to keep it short or they will lose interest.
If you have not done so already, take your teenager to your credit union or bank and have them establish a savings and checking account. Let them go through the experience to understand the process of banking. They will eventually understand that part of moving on to the next stage of life is having responsibility for their own accounts, debit cards, and checks. (By the way, everyone can utilize a debit card, so show them how to write a check. This is becoming a lost art!)
For some reason, this "B" (udgeting) word puts fear into the hearts of a lot of people. However, for you and your kids, this exercise should be something you all practice. Show them that it is something as simple as Income - Expenses = Zero. Income is the money coming from paychecks, eBay sales, babysitting jobs, and parents' monthly support. Expenses are monies going out, divided into Needs and Wants. Needs are the areas that are required to live ~ rent, utilities, food, clothes, and gas. Wants are opportunities - gaming, movies, and meals out - once the Needs are satisfied.
Utilize the 50-30-20 expense budgeting method. Once income is determined, take out 50 percent for Needs, 30 percent for Wants, and 20 percent for Savings. These numbers can fluctuate depending on your life stage and area of residence. If there is money left over, put any extra directly into savings. It really is very simple once you get past the intimidation of numbers and spreadsheets. There are apps on the internet - Mint, Truebill, and Everydollar - to help you keep track of all financial transactions and creating user-friendly budgets.
Many people have mixed feelings about credit. Your children can't establish credit until they are an adult (18+). However, talking about it can remove any trepidation that parents may have around this subject. Once the teens understand the power and responsibility of having credit, they will comprehend that credit cards (technically a loan), student loans, and any other "loans" are not just free money. Young adults will be bombarded with credit card offers throughout their college years. Explain that it may be a good idea to have one credit card to begin building a credit history. However, applying for EVERY card that comes along can ultimately hurt them in the long run.
Discuss with your teens all of the different types of loans that may be applicable to them and why they may want to utilize them in their young adult years. Before your kids pursue any type of loan, encourage them to speak to you first for additional guidance. There may be other alternatives instead of going into debt. Loan products and credit history development may not be taught in your particular schools. Reach out to your credit union or bank to see what kind of education they provide for their members and customers. Several financial institutions supply a financial literacy program for clients of all ages.
As you review savings, budgeting, and credit management with your high school Seniors, you begin to create a financial health plan for them. You are building a foundation of trust through these discussions. Although there will be many other details to consider before they leave home, preparing them now about their personal finances will make them more confident to handle the decisions life requires of them. There are many tools and resources online and assistance through your financial institution or local financial health coaches.
For further answers to questions, check out my Facebook page at www.facebook.com/FHeducators.