4 Basic Lessons Your Teen Should Know

by Kim Nelson

College and Money Tips 

Every year thousands of Montana teenagers head to college.  Worried parents send them off well stocked with advice, school supplies, new clothes, and a safe vehicle if at all possible.  Unfortunately, many otherwise intelligent young adults arrive lacking the basics of money management.

Parents assume their teenager will automatically understand how to manage and budget their financial resources once they are out on their own.  Their false assumption comes from them witnessing their child graduating from high school and passing a college entrance exam.  Surely anyone who gets into college knows how to balance a checkbook and avoid the credit pitfalls that await a large part of America’s adult population.  The sad truth is that many students quickly get buried in credit card debt and develop a bad reputation by writing dishonored checks soon after entering college.

Kids aren’t born knowing how to prudently use credit cards or balance a checkbook.  It’s important that parents take the time to cover the rules of the credit game and teach them the basics of owning and operating a checking account. 

Here is an alarming fact!  More students quit school because of credit card debt than academic failure.  It’s tough to study for exams when the bill collector is knocking on your dorm room door.  Credit cards are handed out like candy bars on college campuses.  This is the only time in life where nearly anyone can obtain credit without a job, income, or even a credit score.  83% of college students have at least one credit card.  Fully 1/3 of card carrying college kids have been late on their credit card payments.  Excuses run the gamut but the bottom line is that your child ends up paying excessive fees and interest charges as a result. 

A majority of kids entering college have never had a checking account.  This can be a tough life lesson if they don’t take the responsibility seriously.  30% of college students have bounced a check.  Fees can run as high as $50.00 at the bank and another $30.00 at the merchant where the bad check was written.  Aside from the high costs, this can be an embarrassing ordeal for a young adult, especially if a merchant displays the bad checks for all to see in an effort to shame the kid into making good on the check.

As parents you need to cover a few basic financial lessons with your teen:

 

Open a Minor Checking Account When Your Child Is In High School

Many financial advisors suggest that you open a joint account with your child during their high school years.  This way you can be sure that they fully understand how a checking account works before they are on their own.  Budgeting should also be part of this life lesson.  The check register will document spending patterns and open doors for you to discuss how and when your child is spending money.

 

Credit Cards

Reliance on plastic can be a hard habit to eliminate if it is allowed to develop.  It’s important to remind your child they are borrowing money each time they pay for something with a card.  Loans must be repaid with INTEREST.  Who wants to pay interest on pizza and downloaded I-Tunes?  Students don’t realize how much they spend on “little things.”  It can also be quite a revelation when you show them the cost of using credit if they only pay the minimum balance due.  Make sure they understand the credit rules and the consequences.

 Credit and Your Future

Pay bills on time.  Untimely payment of bills adversely impacts an individual’s credit score which results in higher loan interest rates on cars, houses, and anything else purchased on credit.  Use a calendar like Google Calendar to send payment reminders.  Talk to your bank about balance alerts, online banking and debit cards.  Timely payments are the key to establishing a strong credit history. 

Cash and Savings

Get in the habit of using cash for everyday purchases like food, clothing and gas.  Teach the benefits of saving at a young age.  The time value of money is incredible.  Put a small amount of money aside each month regardless of amount.  Unexpected things happen and your young adult will be prepared when the rainy day arrives; and it will rain someday.

 Wise Tip

Tell your student to ask for help if they hit a financial bump.  Remind them that everybody makes mistakes.  Financial miscues are costly and have severe consequences.  If they are addressed in a timely manner the costs can be minimized and the damage controlled.