The first year of college is full of ups and downs as new students learn to navigate life on their own for the first time. In addition to juggling classes with working, studying or just having a social life, many freshman students are also figuring out how to manage their money without mom and dad’s help. According to the National Financial Educator’s Council, which administers the National Financial Literacy Test, the majority of young adults are woefully under-prepared for tackling financial issues.
When it comes to teaching kids about money, the sooner the discussion begins the better, especially if they’re soon to be college-bound. Simply assuming your teen knows how to write a budget or understands how credit card interest rates work may inadvertently set them up for financial failure once they’re on their own. If you’ll soon be the parent of a college freshman, here are some money lessons you can’t afford to skip.
1. Establish Boundaries
If you’re going to be providing your student with cash to help cover their expenses, it’s important to be clear about what your expectations are before you hand over the dough. Dropping a few thousand dollars into their account and telling them they need to make it last for the whole semester is a good way to ensure they’ll end up broke by the time fall break rolls around.
A smarter approach is to sit down with your son or daughter and talk to them about what their expenses are going to be and the best way to budget so they don’t end up shortchanged. If you’re expecting them to get a job to help cover some of the cost they need to know sooner rather than later so they don’t feel caught off-guard when it’s time to pay tuition bills or buy textbooks.
2. Educate Them About Credit
The 2009 CARD Act has made it much more difficult for young adults to obtain easy credit but that doesn’t mean your freshman student won’t get bombarded with credit card offers once they’re in school. Teaching them about the pitfalls of credit cards early on can potentially help them to avoid a debt disaster later on.
When you’re having the credit conversation, some of the things to cover include how interest rates are calculated, how debt can affect their credit score and the dangers of just paying the minimums. If you’re planning to let them use one of your credit cards then you need to be clear about what they’re allowed to charge. Specify whether the card is just for emergencies or if it’s okay for everyday use; otherwise, you may get a nasty shock when your monthly statement arrives.
3. Encourage Independence
While many parents provide some form of financial support when their kids are in school, it’s not an arrangement that can realistically go on forever. At some point, young adults have to develop the skills and knowledge to be able to financially sustain themselves. As a parent, it should be a priority to help encourage them to do so.
There are several things you can do to promote financial independence without making your freshman child feel like they’re being cut off. Recommending that they get a job, even if it’s only for a few hours a week, gives them an opportunity to gain experience in the workforce while earning their own money. Giving them the freedom to decide how that money will be spent lets them feel like they’re in control and it can be a real eye-opener in terms of how much things cost.
Gradually tapering back on the amount of support you provide over time can give them the chance to get a handle on how to manage their finances while shifting more of the responsibility their way. By the time they graduate, they should be comfortable with making financial decisions on their own.
A good way to jump-start independence is to begin teaching your children about financial management early in life. To make the decision process simpler, SmartAsset’s banking experts have identified the top savings accounts for kids in 2018.
4. Allow Them to Make Mistakes
No one’s perfect and the freshman year of college is really a test, both for parents and students. When it comes to money, your child is bound to slip-up along the way but the key is to help them learn from their mistakes rather than lecturing them on the error of their ways. An overdrafted bank account, for example, can teach them the importance of tracking their spending.
When a mistake occurs, help them to come up with solution rather than automatically rushing in to fix it for them. In most cases, allowing them to stumble once or twice isn’t financially devastating and it can teach them some valuable money lessons in the long run.
Getting your teen ready for freshman year is stressful and there’s no way to fully prepare them for every problem or issue that may come their way. Providing them with some basic financial education before they leave the nest can help make the transition as smooth as possible.
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