Sending the kids off to college is exciting and scary all at the same time. You’re excited and hopeful that their collegiate experience will be fantastic, enriching and rewarding. At the same time you’re scared that your child’s undergrad experience is also going to be fraught with mistakes and problems, particularly when it comes to their finances. The cost of living, social changes, and academic challenges of college can be a lot to take on all at once. Here are three things that you can teach your kids to ensure that they go out into the world with a stable financial education on which to make their own decisions.
1. When you use them well, can be your best friends. When used properly, those first cards are a fantastic way for your kids to build up their credit ratings. Encourage them to use the cards regularly but to never ever charge more than they can afford to pay off in a single month. If they do want to use the card to buy something big, teach them to pay that off completely (and by making more than the minimum payment each month—even $5 more can make a huge difference) before buying something new.
1a. Teach your kids how the interest rates on these cards work. They aren’t likely to get a good rate when they get their first card; they have no credit rating to back them up. But teach them how to negotiate a lower interest rate after six months or so, when they will (hopefully) have a positive history to back up their requests. Teach them to always research which credit cards to get and that keeping a close eye on their interest rates is a good idea. That any hike in rate needs to be addressed with the company.
2. Help them set up a savings account. Emphasize that they need to find the best saving interest rates because that will help them out in the long run. Teach them how compound interest (the rate most often offered to savings accounts) works and why it is important to put money into that account regularly—even if the amount is small, getting into the habit of putting something aside will serve them well later on.
Clippings and Savings
3. Help your kids learn how to shop for bargains on the things they need. Encourage them to use coupons and deals whenever possible (but only if they are applicable) and that buying generic isn’t “lame,” it’s often smart. Being able to figure out what things actually cost and shopping the sales will help them stretch their meager budgets as far as possible, which is a habit that will serve them well even when they get out of school.
Your kids are going to be facing a lot of peer pressure when they get to school—they’ll feel the need to keep up with their dorm mates and fellow students. Teaching them how to be financially responsible will help them better deal with this pressure because they’ll know how to get the things they need and things they want—without bankrupting themselves or ruining their finances after they graduate and that is the best lesson of all.