5 Ways To Teach Your College Bound Child Financial Wisdom
1. Help your child draft a “real-world” budget.
Help your child figure out what income there will be (money from home, financial aid, a part-time job) and when it will be coming in (at the beginning of each semester, once a month, or every week). Then compare that with estimated monthly expenses (school supplies, entertainment, food, etc.)
2. Make sure your child understands the difference between needs and wants.
For example, buying food for the refrigerator is a need, but going out to a restaurant to eat is a want. Drive home the notion that needs come first and wants are a luxurious second (if there is money left over).
3. Help your child to have a saving and stretching mentality.
You don’t want your child to spend exactly what comes in each month. The habit of saving can be solidified in the college years, by telling your child to put aside a little each month for a rainy day. Also, students often get a big junk of money at the start of the semester that is expected to last 6 months. Putting that money into a savings account from the start will help your child to not look at it as disposable income to use up from Day 1. This will prepare them to stretch their first pay checks in the early years after graduation.
4. Help your child to start a paper (or electronic) trail.
Show your child how to track expenses by saving receipts and keeping an expense log. Knowing where the money is going will help your child stay on track. This is a skill that will be needed throughout adulthood, so helping them create a system now will benefit them in the years ahead.
5. Get them a credit card and teach them how to use it responsibly.
It goes without saying that their first credit card should have a low limit and that you should tell them to never reach that limit. Explain to your child that the goal of the credit card is to make a purchase and then pay it off in a month or two at most. Explain how credit card companies make their money by charging high interest. Show them some scenarios in excel of the total cost of a $1000 purchase if paid off in 2 months vs. paying it off at the minimum fee for 20 months. Also, teach them not to be lured by banks showcasing their stands at the University. One credit is enough.
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As a financial advisor, I can help you and your child with any financial goals and challenges that you might face. In addition, I can help provide services for the entire college planning process that could potentially save you thousands of dollars. This includes helping your child produce a winning application to the right schools, helping you organize your finances, provide invaluable support for the FAFSA application process, and help you appeal for more financial aid support.
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