Financial literacy is one of the most important skills to learn, yet it isn’t required teaching in schools. As a parent, you might be wondering how to start the conversation about money with your children. Think of this as your go-to guide on everything you need to know about preparing them financially for life as a college student. And don’t worry – you don’t need to be a money expert to talk to your kids about finances. It all starts with being honest and instilling strong, smart values!
Here are five financial lessons you should teach your high school student to help prepare them for college.
1. Explain the importance of setting goals and budgeting
“Sorry, that is not in my budget” is a phrase every parent should teach their children. I can still remember the first time my mom said this to me. She said it as a joke, but it quickly turned into a valuable money lesson.
Through this phrase, my mom taught me it’s okay to say “No.” During college – and even today, at 26 – I’ve often said this to myself before a financial decision. It doesn’t matter if I have enough money to purchase an item, attend an event, or go on a trip; if it’s something that would take me away from my goals and my budget, I simply say, “No.”
So how can you teach your child the importance of budgeting and the lesson of saying ‘no’ to things that may not serve their long-term goals? Teach them to pay themselves first. This means that for every dollar they earn, they’ll set aside a certain percentage.
Let’s say your student works a part-time job earning $400 every two weeks. They should first establish how much they’d like to save. This could be a dollar amount or a percentage. Help them set up an automatic transfer, so the amount decided is automatically deposited into another account, like a savings or investment account. If your child wants to save $200/month, have them set up their paychecks, so 25% ($100) of each paycheck gets deposited into a savings account, while the remaining 75% goes into their checking account for personal spending.
Then, coach them into creating a budget with the leftover money. This method is excellent because it forces your child to prioritize saving money before anything else. If they learn to prioritize saving while young, it’ll become second nature by the time they graduate.
As a young person, it’s easy to say, “I have my entire life to focus on saving, so I’m going to focus on living in the moment.” But it’s important to remind your soon-to-be college student the decisions they make today have lasting impacts. It’s also important to remind them that planning for the future and having fun are not mutually exclusive.
2. Be honest about your financial experiences
Do you remember how and when you first started learning about money? Did you earn an allowance? Or have a part-time job? Sharing these stories will help teach your child what good money habits are and how they can benefit from them. You could share what smart investments you’ve made, your journey of establishing strong credit, and other strategies that have helped you save over time. And don’t be afraid to share some mistakes too.
My parents did a great job raising my siblings and me, but one thing I’ll never forget is their lack of comfort in talking to us about finances. This changed once we graduated from college, but we missed out on years of valuable tips and teachable moments. This is not abnormal either. Money is often regarded as taboo and can be difficult to discuss.
If you’re starting later in the game, think about what you wish you had known about finances before heading off to college or moving out of your parent’s house. In a survey I conducted of 100 high school students and college freshmen, 44 indicated that their parents did not speak openly to them about money. That means that almost 1 out of every 2 students are not learning about finances from their parents. In the United States, there are currently only 15 states that require personal finance coursework in high school. So, if schools aren’t teaching healthy money habits, and neither are parents, where does that leave our students?
It may be awkward or uncomfortable, but having these open conversations will give your student a good understanding of how money works and the importance of instilling good habits early in life.
3. Teach them about delayed gratification
I read a quote once that said, “You steal from yourself if you buy what you don’t need.” I couldn’t agree more. In fact, I’d argue that delayed gratification is the most important money lesson a student can learn.
When your child enters college, there will be tons of concerts, trips, sporting events, and restaurants they’ll have the opportunity to go to. Help them understand they don’t need to attend them all. Teach your student how to pause and evaluate when making money decisions. They should always ask themselves, “Is this a want or a need?” and be thinking of the short and long-term impacts of their decisions.
Teach them that, while it is important to live for today, there is plenty of value in planning and preparing for the future as well. Maybe you avoided taking vacations for a few years to save money to buy a house or cooked food at home for a while to save on dining out. By sharing these habits and lessons, I guarantee they’ll be thankful for it in the long run.
4. Talk to them about responsible borrowing: student loans and credit cards
During college, I took out federal unsubsidized loans. I didn’t realize until my junior year that interest had accrued on the loans I had been taking out, thereby increasing the amount I owed. If you and your student are planning to borrow to help pay for school, make sure they understand what they’re borrowing, how much it’ll cost, and ensure they have a plan to pay it back.
Building strong credit takes time, so the sooner they start building credit, the better. To help them start slow, you can encourage them to use a credit card for groceries and other small purchases they know they’ll be able to pay back in full each month.
5. Introduce them to the importance of investing
Investing is easier than you think. Your student could start with as little as $1. If they have a steady income and can afford to think long-term, investing is a great opportunity to set themselves up for financial success.
Here are a few things I’d encourage you to share with your children before they start their investing journey.
Start early and stay consistent! When it comes to investing, the sooner they start, the better, even if the dollar amount is small. There is a saying, “Time in the market beats timing the market.” The longer you invest, the more time you have to take advantage of compounding – which is why young students have a unique advantage.
But investing can be risky. Before jumping in, guide your student that they need to do their research. There is no shortage of outlets and accounts providing investment tips and resources, so it’s essential to reference multiple sources.
Investing is a long-term exercise – it’s not about becoming an overnight millionaire, and there is no need to overcomplicate things. The decision to set a little bit of money aside every month will set them up for success down the road.
Money is not always an easy topic to discuss, especially with your student. To help put your child on a path towards building a strong financial foundation for themselves, keep in mind these five essential lessons. And remember to focus on sharing small lessons you’ve learned during your personal journey: any mistakes you’ve made and decisions you’re thankful for.
And most importantly, give yourself and your student some grace. Not only is money a difficult topic, but it takes time to build strong money habits. So, next time you’re wondering how to talk to your child about money, refer back to this guide. I know they will thank you later!