Sending your child to college can be a difficult time of life. While there are many different factors that can add stress to that college departure, one that is far too often the concern is the issue of money. Teenagers are infamously immature, and the thought of sending your young, inexperienced adult out into the big wide world where they’ll be in charge of their own financial decisions can be daunting.
Fortunately, if you take the time to teach them financial literacy from a young age, you can largely minimize the monetary risks that come with time spent in college.
Here are six lessons that are worth their weight in gold — quite literally — and should be firmly embedded in any fledgeling college student’s mind before they pack up for that dorm room and head off for their freshman semester.
1. Money Equals Responsibility
From a young age, your kids see you spending money. But that doesn’t mean they naturally understand the nuances that come with handling finances. On the contrary, often all a child sees is your decision to buy something, an exchange with a store owner or cashier, and then, presto! You own the item.
In fact, in the modern, tech-dominated era, it can get even more convoluted than that, as children often see you choose an item on your phone, add it into that shopping cart, and checkout without so much as a dime ever seeing the light of day.
All of this nuance can make it difficult to truly understand how finances work, which is why the first lesson simply boils down to teaching your child that money equals responsibility. It isn’t free, nor is it unlimited. Before your child is faced with the expenses of feeding and clothing themselves throughout college and then the numerous costs (not to mention student loans) that come afterwards, it’s important to instil in them a healthy knowledge of how money flows into and out of a household. Feel free to use your own home and their own activities as a low-pressure example.
2. The Cost of Plastic
The second lesson follows up closely on the first one. It’s crucial that you take the time to teach your children the power of plastic. Swiping, inserting, and punching in your credit card is a deceptively “free” looking activity that actually has dire consequences if left unattended to.
Not only can it lead to late fees and hefty interest payments, but it can also negatively impact your credit score, all of which should be common knowledge to your young adult before they head out the door.
3. Set a Budget
It’s age-old wisdom, but it doesn’t change the fact that it’s effective. A college student should be intimately acquainted with setting their own budget before they start their first semester. They should be able to see their income, budget their expenses, and plan for the future.
Part of this can be done by making sure that you teach them why it’s important to have a budget and to let them make their own budget before they leave your house. Stay by their side to teach and lend a helping hand where needed, but don’t do the work for them. Let them wrestle with their own income and expenses (however small they may be) before they’re faced with the exponentially larger costs of adult life. You may even consider helping them work out a budget for college by giving them a heads up on what kind of expenses they’ll be seeing month to month.
4. Good Versus Bad Debt
Debt is part and parcel of the modern world. But that doesn’t mean it’s all good. Teach your child about the difference between good and bad debt.
A home mortgage with a low-interest rate, for instance, is a good debt that enables you to live life and make more money. A maxed-out credit card with a payment that is primarily made up of interest, on the other hand, is only going to drag you down.
5. Sizing Up the College Investment
The brick-and-mortar college experience is expensive, and unless a full-ride scholarship is offered, there’s not really a way around it. However, that doesn’t mean your own offspring have to go that route just because it’s the normal thing to do.
Ensure your child knows that they have other alternatives that can lessen the financial burden like online classes or CLEP tests, both of which can shorten the amount of time that needs to be spent physically on campus. There’s also the option of trade schools, which can provide job security and are much less expensive. Size up the pros and cons of each choice, and make sure that they understand the financial commitment before they dive headfirst into that overpriced “college experience.”
6. Teach the Power of Savings
Finally, it may seem outlandish to think of saving money during college, but it really is possible for a fiscally sound individual to do so. Teach your child to set a budget and keep their expenses as low as possible (think used textbooks, a used car, living off-campus, etc.). Instil in them a willingness to work part-time and look for student discounts wherever possible. If they can do their due diligence in areas like these, they really can have a fair shot at saving some money.
In addition, the college experience will be over before they know it. Once they start making money from a real, full-time job, it’s important for them to understand the power of a saved dollar for both short-term and long-term savings.
Preparing Financially Literate Children
If parents take the time to teach basic concepts like these to their kids before they’re off living on their own, their children stand a much better chance of finding success and happiness through life. And that isn’t just referencing financial success and the “American Dream,” either.
The possession of a healthy knowledge and respect for how money works enable young adults to operate in the world more comfortably, whether it’s as a CEO of a Fortune 500 company or a passionate employee of a fledgeling nonprofit startup. Regardless of one’s financial status in life, knowing how to manage money is necessary and valuable, and it’s a skill that all children should know before they make their way into adulthood.