If you are one of the millions of parents sending a kid to college soon, congratulations! It probably took a lot of dedication and hard work to reach this important milestone.
Along with this independence comes another milestone some teens aren't prepared for: managing their money and balancing a monthly budget for the first time. If teens don't get any financial "training" before moving away from home, they could be asking you for money all the time, or worse, ending up in serious credit-card debt.
Here's how to teach them some important money lessons before they head out on their own.
Give teens a monthly allowance that they have to manage. If they spend it before the end of the month, do not give them extra money. This is crucial if you want them to learn to live within their means, without you as a financial safety net. Help them establish a budget that involves automatically saving a percentage of the allowance so they learn to spend less than they have.
Show them how to manage credit by adding a card for them to your own account (with a pre-set spending limit) or by opening a secured credit card that only allows them to spend the amount deposited in the account. Once they realize that they actually have to pay for what they buy (and you're not covering all the bills), they'll be better equipped to control their spending. Make them pay from their own allowance or job earnings, and don't let them carry a balance. When they're ready for their own card, consider the State Farm Student Visa if they're enrolled in a post-secondary educational institution – it's designed just for college students.
Crunch some numbers with them before you send them off to college. Write down all their fixed monthly expenses, and itemize what you are willing to pay for (and how much), and what bills or expenses they'll have to cover on their own. Maybe you'll pay for their cell phone or car insurance, but entertainment, eating out and clothing purchases will be all on them.
Make them read to you the fine print on credit card or loan applications so that they realize how expensive it is to borrow money. College kids are bombarded with student loans and credit card offers, which can feel like "free" money. Teens need to learn how to manage debt, and how expensive debt can be. Remind them that irresponsible spending now – including accumulating lots of debt – might prevent them from reaching other goals later in life, like traveling or buying a home or car.
Yamila Constantino is a pioneer of financial education for Latinos. She is a member of the National Financial Educators Council Advisory Board and a winner of the US Hispanic Chamber of Commerce At the Table award for women entrepreneurs.
The information in this article was obtained from various sources not associated with State Farm. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. These suggestions are not a complete list of every loss control measure. The information is not intended to replace manuals or instructions provided by the manufacturer or the advice of a qualified professional. Nor is it intended to effect coverage under our policy. State Farm makes no guarantees of results from use of this information.