Teaching Your Kids to Manage Money

Be sure your kids can manage their finances before they head off to college. College is a big step and the first step to adulthood for many kids. But, most college freshmen are just 18 years old and they re still inexperienced when it comes to finances. A wise parent will help the kid’s gain the skills they need to manage their own finances and help them make that leap into adulthood in a responsible manner.

Does your child have a checking account, or a credit card? These are areas where many young people mess up. Because the money in the checking account or available on the credit card is not cold, hard money or green cash that they can feel and fold, it does not seem like real money to many. Credit and finances have some abstract concepts involved. Help your child become responsible by helping them with money.

The first thing to do is to help the child set up a budget. When you and your child work out a budget, take into account all of the expenses they will have. Rent, utilities, car payment, gas, tuition, books, phone bill, cell phone if they have one, and everything else they need to spend money on. Add in a little bit for entertainment, because they are after all in college and need to experience college life. Then, what income do they have? Are you paying the bills? Do they work or receive loans, grants or scholarships? Figure in the income and the outgo, and make sure your child understands what is available, what must be spent, and what can be spent. If your child is responsible having them pay the bills themselves is a good learning experience. Unfortunately not all children are responsible. If your child is not you may want to pay the major essential bills yourself and let your child handle the minor expenses and get the experience.

If your child goes off to college with a credit card, set ground rules. Is the credit card to be used for emergencies only, or for regular purchases? Explain that credit cards have high interest and finance charges and that the best use they can make of a credit card now is to use it to pay for those things they would normally pay cash for. Then at the end of the month they should pay the entire credit card statement, paying off everything that is owed and due. With this system they will build their credit and improve their credit rating, but will not run up large bills, getting caught in the credit card trap many Americans find themselves caught in.

Also make sure that your child knows how to balance a checkbook. Some kids don’t keep track of the checks they write, and soon they don’t know how much money they have and become lost. This can lead to bounced checks and additional fees. Buy your child a calculator and show them how to balance a checkbook. This is a skill they will have for life.