Some people like to think the question is, “When is it too early to discuss money with your children?” But I often turn that around and ask, “When is it too late?” While it can never really be too early to talk about money, even in simple terms with young children, it can be too late when your child goes out and makes a poor money choice that haunts you, him/her, and your family for a very long time. Some examples of when it is too late:
• Your child gets emotionally invested in going to one specific college and then finds out you don’t have the money for tuition.
• Your child doesn’t work sufficient hours, or wastes money during the summer, and then does not have money available to purchase books or take advantage of special educational opportunities.
• You have no idea how much financial aid your child might be able to receive, and waste time applying to colleges that are out of your reach.
• You fail to file the FAFSA as early as possible and miss out on crucial financial aid opportunities.
• Your college student doesn’t understand how student loans can add up and borrows the maximum amount available each year. There is a great surprise waiting for everyone in four years when the graduate’s monthly earning potential doesn’t outpace the monthly student loan bill.
• Your student has no sense of financial responsibility, and uses credit unwisely during the college years. This can put a negative mark on your student’s credit report, or force you to spend part of your retirement savings to help your child and reduce the debt load.
These situations can easily be avoided with consistent money lessons and frank financial discussions as your child is growing up. This is not just one talk, but a series of life lessons that you impart to help your child make wise choices. Frequently the old wisdom about money still holds true; it’s just up to you to put it in a way that makes sense for your child. Some tried and true money insights include:
• Know the difference between needs and wants: Life has a few basic needs – food, shelter, and clothing top the list. But we don’t need more food than we can eat, more house than we can fill, or more clothing than we can wear – those are wants. The same is true with college. In this day and age, more people need a college education. But they may not necessarily need it from the biggest, most impressive, most expensive college there is. Many lower-cost colleges offer perfectly fine educations and turn out thousands of graduates who go on to lead exemplary lives.
• Neither a borrower nor a lender be: Some of this wisdom applies to parents who think they have to be responsible for all of the college costs, or who agree to become a co-signer on a private student loan or expensive credit card. If the student has no fiscal responsibility, the amount due can become the parents’ responsibility, and the student has learned nothing. If a child is involved in saving money, making money decisions and borrowing money wisely, these lessons will help pay for college, as well as support their chosen lifestyle after graduation.
• A penny saved is a penny earned: It seems like saving money has gone somewhat out of style, and that everyone likes to live on borrowed money, easy credit, rental homes, and leased vehicles. This approach lives for the present and does not save anything for the future. A child who earns an allowance and uses money to make small purchases goes on to be a high school student who takes summer jobs to save money. That high school graduate then has a head start on all his/her college classmates.
You might feel uncomfortable discussing money, or putting limits on your child, but the temporary discomfort you possibly feel will be far less than the permanent damage that could be done when your college graduate tries to start down the path of life with thousands of dollars in credit and student loan debt.