10 tips to raising money-savvy teens |
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Before they go away to school, have them set up a
budget for expenses. It will increase their awareness about
money flows, ingoing and outgoing. After graduation, show your children
how to make a household
budget. Using the starting salary of their chosen profession
as a guide, have them calculate their after-tax income and then
figure out how much they can actually afford to pay for the basics,
such as rent, food, utilities, insurance and transportation, as
well as vacations and entertainment.
3. Finance college
Don't forget to factor student loan payments into the monthly budget. Of the college students surveyed, two-thirds carry some student
loan debt, with 70 percent of those students shouldering $10,000 or more.
To keep your teens from getting in too deep, work the numbers together. Tell them how much you will kick in toward
their college expenses and help them figure out a plan for covering the rest. If their answer is "student loans," Bankrate's calculator
shows the true cost of a loan, which may help your children understand this
is not easy money. FinAid offers a more extensive set
of calculators for student loans with varying terms.
Seeing that they'll be on the hook for $575 a month for 10 years if they take out $50,000 in loans may give your
children the incentive to look for ways to cut costs. They might consider commuting or attending a state school.
4. Establish credit
College loans make up only part of the debt load that students carry after graduation. Because two-thirds of college students surveyed
have one or more credit cards and 83 percent got their first one by the end of their freshman year, it's easy to graduate
owing thousands more.
"They hand them out like candy on college campuses," Howard says. "I look at it as part of the freshman
year survival kit: Don't flunk out, don't get arrested and don't take on debt."
Although Howard advises against freshmen or sophomores having credit cards, he does encourage college students to
apply for two during their junior or senior years. "It's the only time in your life that someone will give you credit with no proof
of income and no credit history," Howard says.
5. Identify wants vs. needs
Because some teenagers think of credit cards as free money, remind them that when they charge something, they're taking out a loan
that must be repaid. As such, they should only use credit cards to meet their needs, not their wants. Some 11 percent of high schoolers
surveyed thought it was OK to borrow against future income to go on vacation or buy sale-priced clothing.
"Kids need to understand the many factors you consider when you make a financial decision," says Brette
Sember, author of "The Everything Kids' Money Book."
"It just looks too easy to a child when you make the purchase -- they don't see all the thinking you've done to get
you to the point where you do whip out the plastic," Sember says.
6. Deal with debt
Whether they racked up debt buying pizza and beer or charging car repairs, a third of college students surveyed have an outstanding
balance of $1,000 or more on their credit cards, and half carry a balance some or all of the time.
While paying the minimum looks like the easy way out, plug the numbers to find out the
true cost of debt. Assuming they charge nothing else, it'll take nearly 22 years and over $4,100 in interest to pay
off a $3,000 credit card balance with an 18 percent interest rate if they only pay the minimum.
"It's a real eye-opener," says Bodnar, who is also
the author of Kiplinger's Money-Smart Kids column. "It does a lot
more than even lecturing kids on credit because they might forget
the lecture, but they will remember this."
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