How to Better Prepare Your Kids to Manage Money in College

April 18, 2017

This is the season where I start to get invitations to friends’ and relatives’ kids’ high school graduations. It never fails to amaze me how quickly they grow up. As I start to think of these kids graduating, I realize many of them will be getting ready to go to college, completely unprepared for how they will handle money.

That was the case with me. My family never discussed money with me and when I went to college, the peer pressure of having to look a certain way and the desire to hang out friends quickly left me broke, no matter how much money I had. If I could go back to 1990, ten years ago when I graduated from high school (please allow me to remain in my mathematical delusion), I wish my parents would have better prepared me for managing my money in college by doing the following:

Give them an allowance that includes ALL of their monthly expenses. My parents gave me money as I needed or wanted. Typically, I would ask for money for the movies or to cover my expenses for being on the track team such as travel, hotel and sneakers…oh and I forgot – the money to get my hair done. I learned in college that I was high-maintenance and could not afford my own upkeep.  Consider adding up how much you spend on your kids’ activities, personal care and outings and giving it to them to manage themselves.

Teach them how to think about upcoming expenses and budget the money they have. One of my favorite quotes about budgeting is from John Maxwell, “A budget is telling your money where to go before wondering where it went.” Walk your child through the budgeting process to get them thinking about upcoming expenses and how to create and stick to a budget.

A friend of mine opened a checking account for her child in high school.  She deposited money into the account monthly for his expenses. She helped him create a budget using online software like Mint and she had a weekly budget meeting with him.

Her son had to show her how he spent the money for the week and how much he had left. She did this while he was in high school so the money management habits will kick in by the time he went to college. Consider doing something similar with your child to help create the habit of budgeting and thinking through their financial needs.

Teach your kids about credit. When I was in college, it seemed like every credit card company known to man was on my college campus. Even though it has gotten better, credit card companies still market to college students who have no idea what they are signing up for.

Luckily, the CARD Act of 2009 provided some level of protection to college students. The act cracked down on giving credit cards to students under the age of 21. Generally, a jobless student cannot get a credit card without proof of income or a co-signer, but eventually, they will be eligible for a credit card.

I thought credit cards offer “free” money that I could take my time paying back. I had no idea that in addition to paying for the items I bought, I was paying an additional 25% in interest. Help your children understand that the money is not free and that the less they pay on their credit card, the more money they will pay in the long run.

If you decide to give your child a credit card, first make she has good money management skills. Control the credit limit and check in weekly at first to make sure the credit card is being used wisely. Then switch to monthly meetings.

The last thing you want is for your child to walk out of college in credit card debt and with bad money management skills. Teach them good money management habits now to help them build a good financial future. What better graduation gift is there?

 

 

 

How to Teach Your Kids About Money With An Allowance

June 08, 2016

Do you remember the financial lessons you learned from your parents or other close adults while growing up? No doubt your own financial habits and mindset are influenced to this day by the actions and attitudes you observed as a child. This is a good reminder that your adult behavior around money will most certainly affect your children and other young people who look up to you.

One great way to have a positive influence, even if you’re still on your own personal journey to financial security, is by paying an allowance. There is an ongoing debate about whether an allowance should be tied to household chores or not, but many people agree that it’s a great way to teach children about money and financial responsibility. Regardless of whether you believe children should work for their allowance or whether it should be a gift, here are some tips to make the most of this lesson for your kids.

Be consistent. One of the greatest things an allowance can do is teach your kids how to budget, which requires consistency of income. Whether you pay weekly, biweekly or even just monthly, do it on the same day and in the same amount so they understand the value of making their money last. Caving and paying kids early could be akin to payday loans, which is the exact opposite of what you want to teach your kids.

Help them set goals. This can help them see the value of skipping short-term wants, like candy, in exchange for reaching longer-term goals like a video game. One suggestion is to require kids to put one-third of their allowance into savings and one-third toward a charitable need like an animal shelter or church, with the remaining third available for immediate spending.

Introduce them to banking. Open a savings account for your child’s longer-term savings and show them how to check their balance online, pointing out how interest (however miniscule) accumulates, allowing their money to compound. This is also a great way to demonstrate that the ‘M’ in ATM doesn’t mean “magic.” That cash gets in there somehow!

What if you don’t have the money to pay an allowance? This was sometimes the case in my earlier years, but there are still ways to pass along the lessons even if you can’t pass along cash:

1. Use a grocery allowance. Allow your kids a certain amount of the grocery budget that they can spend on special treats or even for their breakfast foods, which you need to buy anyway. I’ll always remember watching a mom do this at the store. When her son selected an expensive yogurt smoothie, I heard her explain how that was a fine, healthy choice, but if he wanted that instead of the less expensive store brand yogurt for breakfast, he would have to put back the juice he had already chosen. The trade-off was tangible and clear.

2. Keep a written tab. If you don’t always have the cash available on allowance day, simply keep a written record by adding that week’s amount to your child’s tab and then when you buy something for them, subtract it from the tab. This isn’t a bad way to go even if you do have the funds as it’s closer to the way we are paid and spend money in modern times anyway.

3. Remember that it’s often more about the practice than the amount. Perhaps you can’t afford to pay the average $67.80 per month that’s the current going rate. Even just $5 a week can teach the lessons.

These are some great ways to use an allowance to raise financially responsible adults, but I know there are others out there. How do you teach your kids about money? Please let me know via Twitter at @kclmoneycoach or post on our Facebook page.

How to Teach Your Kids About Money

May 04, 2016

A recent survey on kids and money revealed that 4 out of 5 Americans believe that an allowance helps to teach children the value of money and financial responsibility but only 68% actually pay an allowance. With student loan debt growing at an average of over $2,700 PER SECOND, it’s essential that kids enter college with a baseline of knowledge so they know what they’re getting into with this debt. If you’re not modeling good behavior for your kids, you may be setting them up for financial stress down the road. I don’t have kids yet, but I have a lot of plans for how we will ensure that they set themselves up for financial success. Here are some ways to teach your kids (or nieces and nephews) about money before they have to start making important decisions on their own:

Start early: As soon as kids learn how to ask for things (or start throwing themselves screaming on the floor of the grocery store because you won’t buy candy), they can understand the concept that they have to wait to buy something by saving up for it. Instant gratification is a problem that plagues humans for life, but teaching kids how to delay it is a predictor of future success. Whenever your child receives money, have them add it to a jar or piggy bank and consider keeping a paper record to instill banking knowledge as well. Every so often, help her count to see how close she is to her goal. Help keep her eye on the prize by explaining how much closer she is to reaching the goal with each addition.

Explain trade-offs: Once your child enters school, he is ready to learn that when you spend money on one thing, you’ll have less to spend on another. Use grocery shopping as a way to demonstrate this. Give him a budget for his own treats, and then as he’s making his selection, explain how buying expensive yogurt might not allow him enough to also buy his favorite juice boxes. Share your own financial decision making as you’re shopping for the household as well.

There are also a bevy of free web-based money games out there. Try the Great Piglet Challenge or Kids.gov for a variety of fun games. Heck, try them yourself. (I’ve yet to conquer the Great Piglet Challenge!)

Consider an allowance: Whether or not you think kids should “earn” money through household chores or if you consider pitching in to be a part of family life, an allowance is a great way for kids to learn how to spend and save. You can also explain how compound interest works once kids reach the “tweens” stage. Use real numbers and say, “If you save $1 per day starting now, you could have over $26,000 by age 65. But if you wait to save until you’re 30, you’ll only have about $15,000.” This may make it easier to talk your tween out of buying a daily sugary snack at school and instead save the money toward a new video game.

Consider college costs: Whether or not you’ll be able to afford to send your kids to the college of their choice, discuss how their decision will affect you financially. If your child will require financial aid in order to pay for school, share your own struggles with debt as a way to explain the consequences of student loans. And don’t shy away from having them take a part-time job to save toward spending money in college. Understanding how hard it is to earn money will make them appreciate the value and think twice about blowing it all on beer and pizza…just most of it.

Drive their own decisions: Once your teen is ready to start driving, instead of just handing her the keys and crossing your fingers that she’ll drive safely, put some of her skin in the game too. My parents had me take care of my own car insurance when I got my first car, which was a great way for me to learn several money lessons. Instead of doing it for me, my mom had me call their insurance contact to ask to be added to the policy. The agent walked me through the additional costs and I handed over money to my dad each month to pay my share.

If I was late or short paying, my car was parked until I paid up. I not only learned how to budget for my bill, I was empowered to take responsibility and when it came time for me to get my own solo insurance policy, I knew what I was doing. Thanks, Mom and Dad!

Most importantly, it’s vital to model good money habits for your kids. We all have our own money stories – our personal frame of reference based on our own experiences growing up around money. For most of us, the biggest influence in our stories came from our parents. Set your kids up for success by rewriting your own story to one of success and financial security.

 

3 Reasons You Probably Don’t Save Enough

May 28, 2015

Whether your main financial goal is to pay off debt, buy a home, or retire comfortably, chances are that saving money will be instrumental to achieving it. Yet too many of us just aren’t saving enough. Why is that? The following are the three main culprits I’ve found and what to do about them: Continue reading “3 Reasons You Probably Don’t Save Enough”

Should You Have an Anti-Budget?

October 16, 2014

A friend of mine recently sent me this blog post called “How the Anti-Budget Can Save Your Wallet.” The basic premise is that a traditional budget isn’t realistic for most people because they just don’t stick to it and it isn’t even necessary to have one. Instead, it suggests simply setting aside your savings first (at least 20% of your income) and just spending the rest without having to categorize each of your expenses. Continue reading “Should You Have an Anti-Budget?”

What I Am Teaching My Kids About Money

October 13, 2014

As you may know from following this blog, I have just completed my dissertation and other requirements to earn my Ph.D in Personal Financial Planning from Kansas State University so we now have two proud Wildcat alums on staff here. (Doug Spencer is the other. He personifies loyalty to one’s alma mater and has plenty of purple shirts in his wardrobe to prove it.) Continue reading “What I Am Teaching My Kids About Money”