9 Money Tips Your High School Grad Needs to Know Before Going to College
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Ready or not, there they go!
It’s been 18 or so years where you’ve held the reins and directed your child the best you could. Now they’re about to embark on their own journey. In charge of their own destiny.
A little scary and a little exciting, isn’t it!
Are you ready?
Are they ready?
Do you trust them to handle money the right way?
Before you send them out the door on their way to manage their own finances, try to reinforce a few key points about money. Set them up from day one for financial success.
A Credit Card Should Not Be an Emergency Fund
To save for an emergency, have your graduate work a summer job and save money. I’d recommend having enough money to cover a month of living expenses, or $1000, whichever is more.
This money should be in an account that should not be touched unless there is an actual emergency (running out of pizza at a party does not count as an emergency).
Credit cards can be dangerous in the hands of an inexperienced and young users.
It is said that the human brain hasn’t reached full maturity until the age of 25. In my humble opinion, this may impact your child’s ability to control impulsive spending or recognize the consequences of maxing out a credit card.
We want to set up our kids for success and avoid financial mistakes from the get go. Avoiding having a credit card is a smart move to avoid the undo stress of accumulating a mountain of debt straight out of high school.
Don’t Live Off of Student Loans
Hopefully you’re financially well prepared to send your child to college and won’t need to rely on student loans.
Ideally, you should not use student loans to pay for your child’s education.
I know this isn’t the case for many families. If you are considering using student loans, please keep them to an absolute minimum.
Here are a few tips that can help pay for college and keep loans to a minimum:
- Pay for as much schooling, books, fees, room and board as you and your child can with cash.
- Start college at a local community college to complete general education where tuition fees are much less expensive, then transfer to a four-year college for core discipline classes.
- Attend an in-state college to avoid paying higher out-of-state tuition.
- Rent text books instead of buying them. If you must buy them, sell them and use the money from the sell to go toward the next set of books.
- Help your child decide on their major before taking core classes. If they continually switch majors, they will end up paying for extra classes.
- Take advantage of “free” classes when attended college full time. Some colleges will allow a range of credits for the same price (i.e. 12-18 credits are the same price for tuition.) If this is the case, and classes are about 3 credit each, then taking 4 classes (12 credits), 5 classes (15 credits) or 6 classes (18 credits) cost the same. If time permits your child to take the extra classes, it’ll save you from paying extra tuition later. (You will still be responsible for books and fees.)
- Don’t rely on student loans for living expenses.
- Don’t accept more student loans than you need. When we were in college and using student loans we would occasionally get a “check” in the mail for unused loans. (i.e. we were approved for more than we needed) It seems like free fun money, but it’s part of the loan that needs to be paid back with interest.
They Need a Written Budget (Every Month)
Teach your child about budgeting and have them create a written budget every month.
They need to start being responsible for paying their own bills on time. If they know how to budget and make it a habit, they will be better off in the future when they start a family and run a household.
You can use this printable budget worksheet for budgeting by month or by paycheck.
Included in this habit should be reconciling their checking account on a regular basis. Teach them to be aware of pending charges so they can avoid overdraft fees.
Teach Them the Cash Envelope System
Using cash can be a great way to stick to a budget and avoid overspending.
Your child will learn to stay within limits and recognize how fast money can be spent. When it’s gone, it’s gone. They must wait for payday (assuming they are working) before they will be able to refill their envelopes.
You can read more about using a cash envelope system here.
Stuff a little cash into the envelopes to help get them started.
Teach Them to Live Below Their Means
Life as a college student can bring back fond memories for us as adults.
Part of those fond memories are the junky items we owned and lived with. Maybe you had a giant wooden spool for an end table or your desk was an old door propped up on cinder blocks.
It’s ok that your child doesn’t have all the “nice things” right now.
Going without for a while and learning to make it on their own will offer them a sense of pride and gratitude for the nice things they acquire later in life.
It also creates better spending habits if they can tell themselves “no” and learn to save up for the things they want.
Teach Them to Save
I had a friend in high school who worked a part-time job from the time she turned 16. Her parents would make her save half her paycheck.
At the time I thought her parents were so mean. It was her money. She worked for it and earned it. She should be able to spend it however she wanted, right?
Now, many (many) years later and think her parents were amazingly smart for “making” her save money.
(Yes, they were right and I was wrong!)
My friend was able to go to college and pay for it herself.
She continued working and saving and when she got married at the ripe old age of 19, she had money to pay for her wedding.
When she was expecting her first child, she had money to buy a nice used car … cash. She never went into debt for anything. She lives on a very modest income but doesn’t struggle because she knows how to save and budget.
How nice would that be?
Whether saving for a big purchase like a TV or a bigger bed, saving for a rainy day, or putting away for retirement, saving money should start now.
It sets your children up for life long success.
Teach Them About Compound Interest
In conjunction with saving, make sure your child knows about saving for retirement and compound interest.
If they get the concept at a young age, they can potentially retire young(ish) as multi-millionaires.
Make Sure They Know About Insurance
I bought my first car when I was 19.
No one helped me or talked to me about what to do. I thought I was smart enough to figure it out on my own.
I figured out how much of a car payment I could “afford” and what car I wanted and went from there. I thought I did a pretty good job … until I found out about car insurance. (Side note, I honestly didn’t even think of car maintenance or even gas … all of which your child should know before buying a car.)
Believe it or not, I had no idea that you had to have it and how much more it would cost. Especially because I was only 19.
No, I didn’t get on my parent’s insurance. That was not an option.
Your child might not qualify to be on your insurance for car or health, so make sure they know that those are extra amounts that they will need to pay for on their own.
Eventually, they will have to pay for it on their own.
This will also tie into their emergency fund, which will help cover the deductible or anything else the insurance doesn’t cover. (New tires, car maintenance, co-pays, prescriptions, etc.)
Don’t Lend Money to Roommates If You Want It Back
We’ve probably all had someone wanting to bum money off us.
Life lesson: lending money to family and friends makes things awkward.
There are certain circumstances where someone is really in a jam and needs financial help. Whether or not you (or your child) decide to lend them money is your call.
There is a chance that they will pay you back, if so, all the better, but you don’t need to cause any tension or fights when they don’t pay you back.
Just make it a rule, if you give money to someone you know, don’t expect to get it back, it’s a gift. If that’s going to bother you, don’t give them money.
3 Bonus Tips for Parents
1. You’re Not an ATM
Part of your child growing up is for them to learn how to use money.
They won’t learn a whole lot if they run out and you constantly refill their wallet.
If they aren’t already good with money, let them get some experience by using it on their own and, yes, even let them run out of money and experience going without.
Emergencies may warrant helping them out, but I still suggest not giving them money. If they run out of food, go with them to the store and buy only enough essentials to get them through to their next payday.
If they need help with their bills and you choose to help, pay the bill directly and insist that they pay you back.
2. Let Them Make Mistakes
Mistakes are a wonderful thing. We learn from mistakes and grow stronger from adversity.
It's okay to let your children make mistakes and learn from them. I'll admit, it's tempting to step in and save the day and it's terrible to watch them struggle. What's amazing is feeling you get when you see them pull through and work out their mistakes on their own.
3. Encourage Them to Work
I know college is demanding (been there, done that.) That doesn't mean your child can't have a job during college.
Even if it is only part-time, working through college readies your child for the "real world" as well as helps them become independent in their finances.
You might take the opportunity to help them with their schedule for the first semester or two. Help them work out class times that allow them to study and complete their school day before heading off to a night job (or take a day job and go to night school).
I used to leave a one hour gap between classes for homework. For example, I'd have an hour break after math and could get homework done during that time.
If your child creates a schedule like this, a lot of homework can get done between classes before heading off to work.
What do you wish you were told about money before you headed off to college? What are some of your best tips to help high school grads and college students?