Emphasizing the Importance of Personal Finance Education

personal-finance-education-tipsThe fall semester is rapidly approaching, which comes with the question of where your child stands financially. Will your child take on major responsibilities for the first time? Will he or she have a credit card or a pre-paid card while at college? The thought of financial responsibilities may be enough to make your teen cringe, but it’s a rite of passage for all financially successful young adults, and there’s no better time to initiate the conversation.

Personal finance education and tips to share with your children before they venture off to college

Track your child’s spending habits.

Before jumping into the conversation, track your child’s spending habits. This should be fairly easy if you have a family checking account or your child’s source of income comes from a weekly or occasional spending allowance. And of course, this doesn’t have to be an under-the-radar task. Simply ask your children where they like to spend their money. Perhaps they’ve been saving for a new pair of shoes, or maybe they’re saving money for college. Either way, this information will help you have an informed conversation about personal finances.

Establish goals and set expectations.

Realistic goals not only are essential for planning and preparing for success in college, but they can also help your child stay on track financially throughout the year. This is especially important for determining and delegating responsibilities. For example, if you are responsible for funding the cost of school supplies, your child may be responsible for purchasing personal-care items as needed. Setting expectations will help your child find motivation for budgeting or for seeking part-time work to help pay for future expenses.

Set a personal budget for your child.

While this sounds relatively basic, setting a personal budget is especially important because your children are likely still learning about the concept and importance of managing their finances. The first step to creating a personal budget is to take a look at the financial instruments involved. Does your child have a savings or checking account? How often will you and your spouse contribute to the account? Using the source of income, you can determine where your child will be spending money and how much is needed each month to finance those expenses.

Help avoid overspending with a pre-paid or debit card.

College debt is inevitable for most graduates, but they don’t need to add to it by racking up unnecessary credit card debt. It can be extremely risky for parents who choose to co-sign a credit card for their children—just ask Reyna Gobel, a contributor at Forbes: “When a parent co-signs for a credit card, they take legal responsibility for the debt. So if the student racks up debt and can’t pay for it, the parent is responsible. The parents can also suffer damage to their credit score if the student uses the card irresponsibly.”

While college can be a great time to start building credit, easing your child into spending may be the better option. Instead of applying for a credit card, use a pre-paid or debit card to control your child’s spending habits so that there’s less risk of overspending, and you don’t end up with costly surprises.

Revisit and adjust.

Just as you would revisit your children’s goals, schedule time to revisit their personal budgets. Perhaps something has changed financially, or they have to finance a tutoring program. It’s important to sit down and see what’s working and what isn’t. And in the event that your children want to start saving for something important, you can help them adjust their budgets to accommodate new financial goals.