The most important talk you can have with your teen might be about the birds and the bees, but talking about credit cards and money management is something that should be taken just as serious and just as important as far as having long-term effects in their lives. According to the General Accounting Office, 42 percent of college students hold credit card debt from month to month, with an average monthly balance over $500. Proper spending and budgeting should start with the family and the best way to prepare your teen for college and adult responsibilities is to teach them basic money, credit and identity information from the beginning. Giving them a money management heads-up will go a long way toward putting them on the road to financial security.
Set up a budget with your teen before she goes away to college. Sit down with her and plan out expenses such as school supplies, food, housing and entertainment. Show her how to divide up her total income for the month into each category, covering the necessities first before adding to the entertainment or miscellaneous pile. Emphasize the importance of following the budget each month and using creative methods such as temporary jobs to make up any shortfall.
Start With a Secure Card
Most college students who get into financial trouble do so with a credit card. Credit is easy to acquire when you’re young with a clear credit history, and teens can amass a wallet full of cards in a short amount of time. Set your teen up with a credit card before she goes to college. Start with a secured card, backed by a set amount of money. This will allow her to experience using credit while not risking creating a large debt. Once she has used and paid off the card regularly, think about sharing a joint card.
Check Credit Score Regularly
Teach your teens to check their credit scores on a regular basis. According to LifeLock identity theft experts, identity thieves love to steal minors’ social security numbers and personal information. The clean credit records and lack of debt make children’s identity an ideal target. Investing in an identity theft prevention service can pay for itself in a short period of time. Police departments are reporting that minors are the fastest growing segment of the population to suffer from identity theft, described on the LifeLock website. Becoming a victim at this young age can affect a college student’s life for decades.
Share a Joint Checking Account
Open a joint checking account with your teen by the time she’s a junior in high school. By this age, she is old enough to have a cell phone, work a part-time job and perhaps drive the family car. When paying her share of these expenses, she can practice using her checking account to pay the bills. Don’t pay extra for overdraft protection; bouncing a check and paying the resulting fees will be a good lesson in budgeting and its consequences.
Learn the Value of a Dollar
Speaking of paying a fair share of the bills, make sure your teen is involved in this activity by an appropriate age. You will do her no favors by simply handing over a credit card or some cash every time she wants something. Food, shelter and clothing are your responsibilities, and the clothing can be held to a budget. Everything else falls under the category of wants instead of needs, and your teen should figure out how she intends to pay for them. Once she equates working 10 hours with the cost of a concert ticket, she will be much more aware of the value of money, and much closer to becoming a responsible money and credit user.
This is a guest post by Don Woods:
Dan is a financial consultant for several small business owners. He writes finance and business news and reviews for cloud computing software