For many students, graduating from college is like a dream come true–a dream that many times comes with a huge and terrifying debt attached to it 😬
According to a survey by the Alliance-Bernstein Investments company, close to 75 percent of college graduates with student loans to pay are struggling to make ends meet.
At the core of the problem lies the fact that the majority of college students lack the basic skills to handle their personal finances. Sadly, the majority of schools don’t prepare students with the financial knowledge they need for college life. This is why, according to experts, parents should take charge of this gap years before their kids head to college and, much possibly, away from home.
Starting as young as 12 years old, kids can start learning about personal finance and debt management. Here are several things you can do:
Help your child open their own checking account. This is an excellent way to introduce them to money management. They learn to write checks, balance a check book, and reconcile a statement; they also learn to control and monitor their own spending; pay attention to fees, navigate ATM networks and avoid costly overdrafts.
Introducing credit cards. A good way to introduce teens to credit cards without the interest charge is the use of a prepaid credit card. Start your teen with a low balance for personal expenses to cover the next two or three months. You can then monitor spending while teaching how to budget.
An alternative to a prepaid credit card is the use of a debit card, which serves the same purpose. The debit card may be linked to a savings or checking account with a limited amount.
You can also help a teen apply for a secured credit card, which can be linked to a savings account with a small amount of cash. While giving them a limited spending capacity, a secured card gives teenagers more responsibility. They learn the importance of paying their balances on time and in full as they build a credit history. Parents still have the capacity to monitor their kids’ spending habits.
Whichever method or combination of methods you choose, there are several key points to stress as teens learn to handle their personal finances:
- How spending for their wants as oppose to their needs makes a huge difference in their personal financial situation
- How to make good financial decisions
- How important it is to save money
- How much it costs to charge expenses to a credit card
- How expensive can be to make minimum monthly payments to cover their credit debt
- How missing their credit payments affect their score and their future financial credibility
- How their credit score will matter as they go out to rent their first apartment, apply for a good job, buy a car or their first home.
Until schools decide to incorporate the necessary personal financial management skills in their curriculum, parents will be a key factor in their kid’s financial future. A teenager should head off to college knowing how to handle personal finances wisely. It could be the difference between getting ahead in life and having to cope with a scary debt even before they graduate.