Parents about to send their teens off to college for the first time have a lot to focus on, so it’s easy to see how teaching the basics of financial management might slip off their radar. Educating our kids about how to handle their money when they’re on their own is an essential step to setting them on the right path for financial freedom. However, according to a study we conducted with EVERFI, 53 percent of college students reported that they felt ill-prepared to manage their money. Luckily, it’s never too late to teach the basics of personal finance so your teen can start making smarter financial decisions. The following areas are some good topics to cover.
Why it’s important: According to our study, 46 percent of all students surveyed reported that they currently had at least one credit card, and 36 percent admitted to already having more than $1,000 in credit card debt.
How to teach it: Heavy credit card debt can put a hindrance on future financial goals, like saving for retirement or buying a first house. For teens who have never used a credit card before, putting expenses on one might seem like a great way to purchase things in the present, without worrying about how to pay for it later. To keep your child from falling into the credit card debt trap, talk to them about credit card interest and how it works, as well as how your credit card is tied to your credit score, and why that’s so important. If you’re comfortable doing so, walk them through how you keep track of your own credit card purchases. There are many financial apps that help your child keep track of their credit score and spending habits, respectively. If you’re worried about how your teen will handle having a credit card, you can always open a secured card for them to use first — which only allows them to spend as much as you put on the card as a deposit — or open their first card with them as a joint user so that you can have access to what they’re putting on it and can discuss any issues before they snowball.
Why it’s important: While 60 percent of respondents said they were going to take out loans to pay for college, the majority of students had little plans for future financial management. Only 34 percent of students surveyed reported that they would balance their checkbook, and 32 percent said they would start saving for an emergency fund.
How to teach it: Especially for students who will be balancing college loans with other expenses, future financial planning will be essential when it comes to covering their bills, paying off debt and sticking to other monetary goals all at the same time. Even if your child will be taking out student loans to cover their education, help them figure out the best way to handle that debt by sitting down with them to go over options. Go through the different student loans that are available to determine which ones are best based on interest rate, fees and other terms, and discuss how consolidation and refinancing might help down the road. By coming up with a specific road map to pay back their student loan debt, you can hopefully help point your teen in the direction of a financial future that includes other financial goals as well, like saving in an emergency fund and saving for retirement. Be sure to also go over basic budgeting with your teen — like tracking expenses and spending and sticking to a monthly spending goal — so that they get the full picture of all the things that an attainable budget should include.
Why it’s important: Finding a job after graduation was the most frequently chosen challenge of respondents in the survey, coming in at 68 percent.
How to teach it: Students who are so focused on and worried about finding a job after school may miss most of the fun parts of their college experience. Help set your child up for success by discussing some of the things they can do early on to set themselves up for better job prospects. Opportunities like work-study programs and on-campus jobs in industries they might be interested in can help them get a foot in the door, meet valuable contacts and decide what they might like to do when they graduate. While you’re talking about jobs, it’s also a good time to discuss some of the other financial issues that come up regarding employment, like taxes and putting money into employee-sponsored retirement plans.
A college education can provide your teen with one of the best opportunities for future success, but it’s important that, as a parent, you start to lay the financial groundwork to raise a money-smart kid at the same time. Implementing some of the strategies above can help, but one of the best ways for your child to learn how to handle money is to watch someone who does it well. The process of being open and honest with your kid about your own money is a good opportunity to make sure that your own finances are in a good place. AIG’s FutureFIT® University modules can walk you through some of the smarter ways to save for higher education for your child, as well as address other essential financial topics like credit cards, retirement and budgeting. Get access to the basic modules for free today, or enroll in your AIG Retirement Services retirement plan to unlock all the learning tracks.
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