Personal Finance and Teens: Parental Guidance Suggested

Today’s college students arrive on campus better prepared than ever.

Stricter admissions standards have led to increased attention paid to academic performance, extracurricular activities and college prep.  And yet despite the extra effort, the majority are still woefully behind the generations before them in one major area– financial literacy.

College students today are more likely to carry student loan debt, own credit cards and carry large balances.  This leads to a greater likelihood of missed payments, late fees and poor credit ratings. 1

Clearly there is a gap in our young adults’ financial game.  With teens spending more time at home over the summer, now is the perfect time for parents to help fill it.

Here are three suggestions to help start the conversation.

Help Your Teen Create a Budget
Your teen likely has a part time job or an allowance, so they understand what it means to have money in their pocket.  But while they may know all too well about the cost of gas money and concert tickets, most likely haven’t considered car insurance or utility bills.

Translating income and expenses into a real life scenario can help make the theoretical much more tangible.

Action Steps

  • Have your teen estimate their income and expenses for their first real world job
  • Use an online calculator to plan a budget, factoring in common expenses including student loans
  • Discuss how much of the remaining money each month should be spent on entertainment and  saved for emergencies
  • Ask them to account for some real world scenarios that may force some tough choices (broken down car, unexpected medical expenses, and others)
  • Discuss options along with the importance of sticking to a spending plan and building an emergency fund

Foster the Responsible Use of Credit
Many people have their first interaction with credit cards while in college.  For cash-strapped students, low introductory rates and small monthly payments can combine for predictable results.

In order to help prevent this, some parents are introducing credit earlier. By co-signing on a card for their teen, parents are able help students make better choices and understand the impact of credit, all while living safely under their roof.  An additional benefit is helping your child build a strong credit rating.

Action Steps

  • Consider setting up a savings account and credit card for your teen
  • Closely monitor transactions online and after a few months look for “teachable moments”
  • Discuss what you’ve seen, the importance of credit ratings, the potential for trouble with introductory rates, low payments and compound interest
  • Model a projection for a large purchase your child may covet (at 18 or 20% interest)  and share the projection
  • Talk about the total cost of the item at the end of the term

Share Your Story

As much as manufactured object lessons and hypotheticals can help your teen understand finance, the best resource will always be experience.  Not every experience has to be their own.

Be a resource.  By opening up about your personal financial journey you can have a huge impact on how your teen ultimately handles money.  Talk about times you struggled, made due or misstepped as well as the benefits you’ve seen from being disciplined.  Hearing how you ultimately persevered and the lessons you learned in the process can prove invaluable.

You may think they aren’t listening, but the wisdom of a parent will go much further than you think.  With diligence today you can build begin to build financial acumen to last all the way to college and beyond.

Doug Weisenberger

Author: Doug Weisenberger

Doug Weisenberger is a Senior Partner with North Star Resource Group in Madison, Wisconsin. For over 35 years he has helped families define and prioritize their goals for the future and then align their finances in support of them.

Registered Representative of Cetera Advisor Networks, LLC and Investment Advisor Representative of Cetera Investment Advisers, LLC.