With the college semester recently begun, we took a moment to offer some advice to students about how they can make ends meet during school without getting in the way of their studies (Payza’s Tips for Making Money in College). But we’d also like to take a moment to talk to the young parents of the world with kids who may still be a long way from their college years.
According to this survey from SaveTheStudent.org, a whopping 4 out of 5 students “constantly worry about money” with 55% claiming it effects their studies and 64% claiming it effects their diet. While many students receive sizable loans, more than half of students surveyed admitted that they don’t understand their loan repayment conditions!
It’s clear that the majority are severely lacking in financial education. Another survey reveals that 48% of college students admit to being financially supported by their parents. Someday, this could be your kids relying on you to get them through school. But if you start to teach your children about budgeting and financial responsibility at an early age, maybe they won’t need your handouts in their college years.
There are 4 basic things your children should learn before leaving the house:
This is the foundation of personal finance. Budgeting is the ability to allot a finite amount of money (say, a teenager’s allowance) to meet ones needs in the most efficient way. Make sure to teach your kids about budgeting – don’t bail them out if they’ve spent their allowance on what they want and neglected to buy what they need. Money doesn’t grow on trees!
2. Spending Responsibility
It’s equally important to let your kids make mistakes with their allowance. They need to learn the hard way that once they’ve spent their money, they have to take responsibility for that decision. By making their own spending choices, your children can learn which purchases are the most rewarding and which ones they often come to regret.
3. Rewards of Work
A basic allowance is only educational as long as your kids know that once they’ve spent it, they’re not getting any more – unless they work for it! Offer your kids a wage for some of the more labour-intensive chores around the house. That way, your kids can learn that, through the amount of work they do, they’re in control of how much money they have.
4. Delayed Gratification
This one is the hardest lesson to learn. You need to teach your kids the importance of a financial cushion. If they always spend their entire allowance, whether or not they budget it responsibly, they may get into the habit of living paycheck to paycheck. Just because they have more money than they need doesn’t make it okay to spend it all. Teach them that putting money away leads to a bigger reward in the long run.
Your children will have enough to worry about at college without also needed to learn personal finance from scratch while they’re there. If they can master these skills at a young age, they will have the knowledge and discipline to handle money confidently and responsibly and to keep focused on their studies during college.