Every summer, a new crop of students graduate from high school, and their parents get ready to release them into the wild. Many of these students are planning to continue their schooling, so their parents dutifully teach them a number of useful survival skills—completing financial aid applications, choosing a school, doing their own laundry, and other important things they need to know to survive in the wilderness of college.
While these skills are vital, the financial skills necessary for survival tend to be neglected. Financial survival skills should be at the top of the list—right up there with learning how to do laundry and how to cook. If you ignore teaching your children financial skills, it could make their first years after high school pretty rough, and have financial consequences that could last well into their adulthood. Add the following financial skills to your list of things to teach your children before they leave the nest.
Budgeting. Very few families talk about money. Many people think money management is a skill our children will naturally pick up on their own. Take it from me, it isn’t. We learn how to manage our money either through education and positive role models, or we learn through making mistakes. And some money mistakes can take years to recover from.
Basic money management for your soon-to-be college student means creating a budget based on realistic expenses, and setting limits on discretionary expenses like pizza and beer, I mean soda. To be successful, fledglings have to understand the difference between wants and needs. As you help your child prepare a budget, include putting money into a savings fund for emergencies; you never know when their 1998 Toyota Corolla will need some fixing.
The key word here is that you are “helping” them create a budget—not doing it and handing it over. It is imperative they have a big hand in creating their budget, because they’ll be the ones having to follow it once they have flown the coop.
Credit. Most college bound kids have no understanding of credit. They learn a little about it from the example set by their parents, but still don’t have much of a grasp on how it works and why it is important. They absolutely need to know how credit works and why it is essential to use it wisely.
Sit down with your child and talk about how to use credit properly. If you don’t understand credit and credit reports yourself, consider taking your child with you to visit a credit counselor to learn more. As a credit counselor myself, I would love to be able to say, “Don’t use credit!” But the truth of it is, if you want to be able to take out loans to buy things like cars or homes later on in life, you have to start using credit now in order to build that credit report. If your son or daughter can be trusted with one, consider opening a joint credit card. By beginning to build a positive history of credit use now, your child will be in a much better position after college, as far as their credit report is concerned.
Student Loans. This is a tricky one. Parents and university financial aid officers often caution prospective students to keep their student loans to a minimum. However, if you have neglected to teach your child about budgeting, how will they be able to figure out how much money they need to make it through the college year?
I, not being a very wise kid, took out the maximum student loan amounts because I had no idea how much money I would need to get me through the semester. I figured it was better to have enough to get me through rather than coming up short. I was wrong. I wish I had listened to the advice I had been given so I didn’t have to spend 20 years paying back student loans.
Teach your young ones some of these financial survival skills before you kick them out of the nest. The lessons won’t all stick and your children will make mistakes, but your initial guidance and encouragement will give them a good head start in their struggle for survival.