What to teach your kids before they leave home
In case you need help picking some wisdom to pass on, we’ve asked top money managers and financial pros to weigh in with their favorite lessons you should share with your child. You might learn a little something, too!
1. Understand debt
It’s important to understand what student loans and other debts will really cost, both today and in the long run. Catey Hill, author of the upcoming book “The 30-Minute Money Plan for Moms: How to Maximize Your Family Budget in Minimal Time,” suggests using real examples with dollar amounts to demonstrate. She says, “Bankrate has a calculator that shows what paying the minimum looks like. Use the cost of anything that might be relatable to your teen, then plug those numbers into Bankrate’s calculator to show how expensive an item can get when you pay just the minimum.”
2. Know what you expect to earn before you borrow
When weighing whether or not to take out a loan to pay for school, College Ave Student Loans CEO and cofounder Joe DePaulo suggests that you think about the type of career you see in your future. “It’s okay if you’re not exactly sure what you want to do yet, but having an idea of your future earning potential will help you avoid over-borrowing now,” he says. “It’s a general rule of thumb not to borrow more for school than you expect to make in the first year of your professional career.”
3. Save, save and save some more
Save what you can, and make saving a habit by revisiting your spending and savings goals each month. David Osborn, entrepreneur and coauthor of “Wealth Can’t Wait,” says that by simply mastering the art of saving and investing, you could end up with a fortune. If you don’t understand money instinctively, Osborn suggests making it a priority to learn about wealth by reading or listening to roughly four books per year about investing. “Learning consistently leads to greatness over time,” he says. “Think of your extra dollars as employees, and if you put them to work for you, they will one day pay you all you need to live and more.”
4. Set it and forget it
Automating saving can lead to successful saving. Chad Parks, CEO of Ubiquity Retirement + Savings, suggests using a digital platform that saves for you so you don’t have to think about it. “One of my favorites is Digit.co, which analyzes your bank account and spending patterns,” he says. “The software looks at your daily checking account balance, learns your spending habits, and automatically moves small funds to your Digit account to increase savings. The amounts vary depending on your checking balance and spending habits for that day/week/month.”
5. Learn how to cut back
If at any point you realize that finances are tighter than expected, conduct an assessment and see where adjustments can be made. Jared Kaplan, CEO of OppLoans.com, recommends that you “create a chart and total your income and expenses and compare them. If you spent more than you made, that’s a clear red flag.” Once you understand the inflow and outflow, you can figure out where to cut by separating wants from needs.
6. Plan for the unexpected
At school and beyond, be prepared for things to cost more than you planned. DePaulo recommends looking for ways to manage your spending to keep costs down. “Borrow instead of buying school textbooks, maximize your pre-paid dining plan instead of eating off campus, and plan for one extra trip home each semester,” he says. “Finally, get advice from current college students to find out how much they are spending on extracurricular activities, school supplies, going out with friends, and more so you can create a realistic budget.”
7. Make your bank work for you
Today’s banks do a lot more than they did “back in our day.” Parks recommends the online bank Simple. “Simple has single-handedly changed my spending behavior and offers two savings features — Goals and Safe-to-Spend,” he said. “Goals allow me to save for anything, from my upcoming trip to Maui to my student loan payment, by auto-transferring money each day to the Goals. My money is still in my checking account (Simple does not make you open a traditional savings account), but when I look at my account, I just see a Safe-to-Spend balance, which excludes funds in my Goals.”
8. Work hard
Some young people struggle with lack of motivation and it’s our job as parents to help them understand the reality of working hard, especially when they have debt. Hill says, “Know the value of hard work—of picking up a job (or a second job) if you have to. Many of us will have debt at some point in our lives—and extra income can be one of the best ways to pay it down quicker.”
9. Find a side hustle
Students have busy schedules, so a traditional job can be tricky. Thanks to today’s “gig economy,” though, there are lots of ways to earn money. Osborn says, “By going out and cutting grass, driving Uber, or even selling old textbooks online, you can create an additional stream of income. The more money you make, the more money you save, the more money you can invest!”
10. To Ivy or not to Ivy
Even if your child is accepted into a top school, it doesn’t mean it’s the right choice for their career path. Margot Bisnow, author of “Raising an Entrepreneur” suggests measuring the expense of school against the likely income generated by the career they intend to pursue. “Will going to Dartmouth help them earn more money as a songwriter ten years down the road? Probably not,” she says. “So set aside your ego and their ego, and ask yourselves the tough question: can we justify spending all this money on an elite private school? What’s the ROI, besides bragging rights?”
Learning financial literacy can be tough, but it’s a necessary life lesson for your children. Send them off with the best chances at success by helping them understand how to budget, how to save, and how to check their credit score (they can check it for free on credit.com) and keep their finances secure.