Finance for the Family 101

Every parent revels in the joy that comes when their children leave home and enter the real world as college students. This crossing over marks the end of a chapter in the lives of both the parent and the child as the parent hopes they have raised their offspring to become contributing members of society. While at the same time, these newly-minted adults are basking in the independence and freedom associated with living outside of the family's home.

This freedom has not come cheap or easy. For eighteen years, mothers and fathers invest themselves in the development of their children believing that if they give them what they need they will ultimately make sound life decisions. Yet, one area in which parents are woefully negligent in teaching is money management. Part of it stemming from their own lack of knowledge the other from a naiveté as to the pressures of lifestyle, which causes a college student to make irresponsible decisions when it comes to money.

There is no class instructing parents on the fundamental things college students need to know in order to mange money successfully. So then, college students are left to learn on the fly, making mistakes that will take them years to move beyond. This is inadequate and an indictment against us. We know better. We have simply done a poor job of teaching the college student to do better.

There are several things every parent needs to do to lay a solid money management foundation for their children.

Add their child to one credit card. The purpose of this action is to begin the process of building a positive credit history for your child. This should typically be done when the child is between 16-18. This will ensure that when the college student pursues getting their first credit card or credit worthy purchase that they have some amount of established credit.

Secure one credit card with a low credit limit. Most college students are immature when it comes to making long term decisions. Credit purchases are long term decisions. A typical college student does not contemplate the overall purchase cost of something when they buy something on credit. Yet, this is the very thing that credit card companies prey upon when it comes to college students because they know they are easily gullible and influenced into doing something they had no intent on doing. Parents can stem some of this excitement by giving their college student a card that is more easily managed. These new entry cards can often be riders on existing credit cards held by the parents so that the parents can monitor the purchasing habits of their kids as well as making sure proper payment is being made to maintain credit worthiness by their college student.

Live and Teach Budgeting. Because most kids are completely out of the loop of the finances of the home they will be unfamiliar with living on a budget. That term often has a notion of poverty but it is essentially a sign of financial discipline. When a college student sees the discipline alive in their parents it makes it a lot easier to implement in their own lives. Parents should choose a budget system that works for them whether it is the envelope system or using some software to plan the family's finances. What parents cannot continue to do is keep their college students ignorant by not sharing the family's financial practices. This is just as practical and necessary as learning how to scramble an egg.

Teach Responsibility Early On. A child that is responsible for one bill (think movie night) when they are in high school are more likely to be able to implement across the board sound bill paying skills. A college student who has never paid a bill before they arrive on campus will view due dates as negotiable and late payments as no problem at all.

Co-Sign When Possible. By the time a college student prepares to graduate there is a good chance that a major purchase will have had to be made. Whether it is in securing an automobile, entering an apartment lease, or obtaining a credit card it is critical that college students have their parents as cosigners. What this does is keep monthly payments and interest rates at more management amounts.

Parents have a lot to be worried about as their children become college students. Debt is a problem many college students are graduating with because of large student loans. These loans and their amounts do not have to be compounded by financial illiteracy. That falls on the parents to instill sound money management skills as well as credit responsibility. Every college student will be making life choices before they graduate. The transition can be made easier if they have the aptitude to make a well-informed decision when they have been schooled in the business of money, credit, and debt.