College is a challenging experience for most teenagers and their parents. Most teenagers relish in their newfound independence. But along with that freedom comes a new set of financial decisions. Unfortunately, very few states (the estimate is 17) require a personal finance class. Which means that most teens graduate their senior year without understanding the very basics of money and how to manage it.
Here are five extremely helpful money lessons parents can teach their children before they go to college…
The dangers of credit cards
According to a survey by Sallie Mae, 56 percent of college students carry at least one credit card. As you might expect, more than 35% of those with a card don’t pay off their balance each month. Students who incur major interest payments due to credit debt are financially strapped before they even start their career. The best rule of thumb when it comes to credit cards is to make sure you’re purchasing something because you need it, NOT because you want it.
Learn to create a budget and track spending
Previous generations had to manually balance their checkbook — thankfully — teenagers these days have access to apps that can do the work for you. Some of the better options are Mint and PocketGuard. These apps make it incredibly easy to track spending. Whether good or bad, without tracking your spending, it’s very difficult to see where you went wrong and how you can correct it.
Pay yourself first
As a student, if you’re fortunate enough to receive some type of stipend, or income from a part time job, it’s crucial to “pay yourself first” before allocating money to anything else. The benefit of paying yourself is that you’re slowly building savings. Life comes with many unexpected expenses and it’s absolutely necessary to have money set aside to handle these surprise costs. This is often referred to as a “rainy day fund”.
Money is earned, not given
Whether parents are willing to admit it or not, there’s a general consensus that parents nowadays give kids way too much without them having to earn it. This sets a bad precedent, because teenagers come to expect something for nothing. As a parent, if you’re going to pay for expenses, try to make your teenager accountable for certain “chores” or other accomplishments that will teach them that money is earned, not given.
Thrifty living is rewarding
While most teenagers are eager to spend their last dollar on the latest and greatest gadget or clothing, those who choose to spend wisely are often happier in the long run. Many savvy parents purchase their teenagers older vehicles and hold off on buying them the newest iPhone, the $500 pair of shoes, or the $2,000 handbag.