Money and finances play such an important role in our lives, yet they seem to be taboo topics for family discussions. As a result, many students head off to college totally unprepared to manage money on their own. They often spend recklessly, sometimes put their financial aid in jeopardy, and use their student loans for purposes other than education. They graduate with thousands of dollars in debt, and are forced to endure severe lifestyle restrictions as they struggle to get the money monkey off their back.
What can you do as a parent to make your child’s future financial life easier? Parents erroneously think their children can’t handle the financial truth, or they are embarrassed to reveal their own poor money management skills. But talking about things openly is the only way to learn, and to set realistic expectations. In fact, the sooner you start talking to your children about money, the better they will become at handling it.
Even very young children can understand the concept of earning money for a chore, or saving to buy a desired toy. As your child gets older, talk to him or her about budgeting, and explain the realities of income, taxes, and household expenses. Once your child is in high school, you need to ramp up the college money discussions so there are no misunderstandings later when the college search begins. Points parents need to make clear to their children include:
• The family’s real money situation: Children may not see or realize what the parents are doing to keep the family finances together. Explain what realistic earning expectations are, along with standard household expenses. If your child wants to make a purchase, map out a savings plan or discuss ways to earn money to work towards that goal. It is important that you provide a clear understanding of how much money you have saved or can make available to go towards college expenses. If you don’t qualify for substantial financial aid, or your student doesn’t earn any scholarships, you might be forced to make a different college choice.
• The reality of student loans: One reason so many college graduates are struggling with student loan debt is that they never knew what they were getting themselves into in the first place. They simply assumed the money could be used for any purpose and borrowed the maximum amount, without giving any real thought to how much money they would be earning after graduation, and whether that would be enough to cover loan payments.
• The joy of budgeting: It may not sound like fun, but learning to live on a budget early on and keeping those habits through college will serve your child very well when “real life” begins.
So, take a deep breath, call your child into the room, and start talking about money. It’s a discussion that really pays off in the long run.