10 tips to raising money-savvy teens and college-age kids

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When it comes to financial literacy, today’s graduates fail to make the grade. Asked about basic financial concepts, high school seniors correctly answered only 48 percent of the questions, down from 52 percent in 2006, according to the Jump$tart Coalition’s recent survey on financial literacy. College students didn’t fare much better, with college seniors scoring a 65 on their survey, administered for the first time in 2008.

Why do so many miss the mark? It starts in the home. Whether they lack confidence in their own money management skills or assume that their children’s schools will cover it, many parents don’t talk about money with their kids, and those who do often miss the fundamentals.

Money talk
Based on recent survey results, it appears that money remains a taboo topic in many households. Make it part of your family’s daily conversation.
The financial facts of life
  1. Balance a checkbook
  2. Budget money
  3. Finance college
  4. Establish credit
  5. Identify wants vs. needs
  6. Deal with debt
  7. Pay taxes
  8. Consider all costs
  9. Save for the future
  10. Stretch a dollar

“A lot of the basic stuff is overlooked by parents just because they assume that their kids know it, and they don’t,” says Janet Bodnar, author of “Raising Money-Smart Kids.”

“Why would they? Unless you tell them, there is no reason they would know that your family insurance bill is going up by $1,000 a year just because they start to drive.”

Before they leave the nest, boost your brood’s financial literacy with these 10 money management lessons.

1. Balance a checkbook 

Of the high school seniors surveyed, only 45 percent have a checking account, and one out of four have no bank accounts at all. Once they leave home and set up an account on their own, those without parental training often make costly mistakes. Some 30 percent of college students admitted to bouncing a check.

As soon as teenagers start earning income from a job, it’s time open a checking account, even if it’s a joint account with a parent, says consumer adviser Clark Howard, author of “Clark Smart Parents, Clark Smart Kids.” Teach them how to write checks, use a register and reconcile their account with their bank statement.

Mistakes will happen, so look for kid-friendly options, such as accounts that charge teens lower overdraft fees. And though he refers to them as “piece-of-trash fake Visas” on his radio show, debit cards are a good choice for teenagers, Howard concedes. Because there’s a finite amount of money they can tap, it’s like training wheels for credit cards.

2. Budget money 

Over a third of the college students surveyed had paid a credit card bill late, and while some just forgot to pay it, others put off writing a check because they ran out of money.

Start teaching your kids how to budget their money as soon as they bring home their first paycheck. With no value judgments, sit down with your children and ask them what they plan to do with their money. Once you know their goals, whether it’s buying a car or an iPod, you can talk about what they need to do to get there.

“Priorities are good because you teach the concept of finiteness,” Howard says. “There’s only so much money.”

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.