A recent Money Matters on Campus survey revealed that more than 40% of new college students didn't feel prepared to manage their money. Some were reluctant to even check their bank accounts for fear of what they might find. Clearly, some advice would be helpful.
Consider talking to your kids or grandkids sooner, rather than later, about basic financial management. These skills are much easier to learn before they become financially independent, as there are fewer financial factors to consider. Teaching them a few basic principles now will leave them better equipped to deal with more complicated matters down the road, such as mortgages, healthcare, and trade-offs that may need to be made in retirement.
Start with these five basics:
1. Determining how much money they have
Although most college students are more likely to consult an app than an actual paper bank statement, it's essential that they understand what they're looking at. Explain any unfamiliar terms, such as "posted" vs. "available" balance. This way, they'll know exactly how much cash they have on hand.
2. Understanding credit and loan offers
College students are easy targets for predatory lending practices. Teach yours to recognize the differences between good offers and bad ones. While it's important to establish a credit history, it's even more important to understand how credit works and how to use it responsibly.
3. Distinguishing between wants and needs
Building a solid financial foundation requires understanding the difference between wants and needs. Since most young adults have had their needs taken care of by their parents, they're used to spending their own money on wants. As they grow older, it's crucial they learn to put needs before wants.
4. Establish a simple budget
The sooner young adults learn to budget, the easier it will be to grasp the basic skills. Teach them the importance of developing a plan for their income, and how to prioritize. Perhaps help them build a spreadsheet or set up an app to track and categorize their expenses.
5. Thinking about tomorrow
Teach your kids to think beyond today, and encourage them to save for themselves, the future, and others. It's never too soon to save for retirement and to start thinking philanthropically. And everyone can use a rainy day fund to help get them through the unexpected.
Next Steps
- Make sure your kids have mastered financial basics by checking in with them from time-to-time.
- Follow-up on any new questions that may have surface after their initial money management attempts.
- Help them quickly recognize when they need financial help, and where to turn for solutions.