Sending our kids off to college is a monumental step, for both parent and child. Freedom, independence and discovering who they are, are all part of the college experience. With this huge step comes added responsibility, with the hopes that we have equipped them with the life skills necessary to succeed.
One of the most important life skills we need to teach our kids is how to be smart with money. I’m not suggesting that money buys happiness, but I am saying that not having money can create heartache and stress, neither of which we want our children to experience.
So, how do we set up our kids for financial success? First, get comfortable yourself with money.
There are many topics to cover around money, all of which are important. Here are three you must share with your kids before they head off to college. In the interest of keeping within my allotted word count, I’ll keep the details short, but this will get you headed in the right direction.
Rule 1: How to properly use a credit card: Credit card debt can wreak havoc on their life, so it’s imperative they understand how to use one properly. Using a credit card can help build credit, which will improve one’s FICO score, so I do suggest they use it. BUT, and here’s the huge but, they must pay off that card in full every single month. I suggest they buy gas or groceries with the credit card, then pay in full. Show them what happens when they don’t pay the balance off and they incur interest charges. There are many online calculators that you can use to show them how much an item actually costs if they pay only the minimum balance. Now is the time they create the money habits that will make, or break, their credit history, so teach them as soon as they get a credit card. They should never purchase anything on credit they won’t be able to pay in full when the bill arrives. The only exception would be an emergency, such as replacing a flat tire or putting food on the table…and I’m not talking beer and pizza.
Rule 2: The Power of Savings: This is where the wealth begins- understanding how to save and the discipline to do it consistently. Just as the interest on a credit card can compound and create a downward spiral, the compounding interest on an investment/savings account can spiral sky high. When I show examples of how compounding interest works, I always, and I mean always, get a look of shock and amazement. Then I’m asked, “where do I start?” Again, check out the online calculators for “compounding interest.” Make the savings automatic, every month. They are blessed with the gift of time- start them saving early and watch their wealth grow!
Rules 3: Find a cause greater than yourself and give back: Being wealthy for the sake of being wealthy is a shallow existence. There are countless millionaires who are miserable. Be an example to your kids and find a cause and donate. Giving is, by far, a greater reward for the giver than the recipient. Teach them to open their wallets, which in turn will open their hearts.