In the best of all possible worlds, you would send your kids to college fully educated on the techniques, practices, opportunities, risks and traps of early adult finances. But we don’t live in the best of all possible worlds. Between all the other responsibilities and challenges of raising your child, most college students arrive on campus with things still to learn.
Since they’re no longer living at home, the distance makes teaching financial lessons all the more difficult. It’s not impossible, though. Consider these tricks for educating your college-age child about money.
Lending Money at Interest
College kids call home to ask for money all the time, and often it’s fair to give them what they ask for. However, this habit can develop bad spending and credit habits that can limit their adult financial success. Instead, lend them the money at interest, charging a rate that’s lower than credit cards but still something they’ll feel. If you don’t feel right about profiting from loans to your children, you can bank the interest against next term’s tuition.
Paying for Grades
If you still pay your child an allowance during school, make it a salary or performance bonus rather than “free money.” You can tie it to letter grades, or develop other metrics tied to their academic success. After all, getting a degree is your child’s full-time job. It’s okay to pay them for that work.
Holding Business Meetings
Accountability is a key part of any successful financial plan, and your kid’s dorm-mates won’t provide any. Work out a budget with your child, then meet on a bi-weekly basis to go over their performance. Use these sessions to help teach basic savings techniques. For the best results,take an advisory/problem-solving tone in these meetings, rather a “judgmental parent” role.
Setting Spending Limits
Your child is (theoretically) an adult now, and has the right to make adult decisions about her spending — but that doesn’t mean she should make those decisions alone. Set, as a team, a maximum purchase size that fits into her budget. If she wants to make a purchase larger than that, she should call and talk it over — not getting permission, just opening a dialog for advice about savings, priorities and sound finances.
Money your child saves for retirement between 19 and 25 is worth two to three times what he saves after establishing a career. Money may be tight during college, but families living under strict budgets still find a way to save a few bucks every week. Find a way — even if it means deducting savings from cash you give them for other reasons — to start the savings habit during these earliest of adult years.