How will your student know what to do in a life situation if you don't talk about it beforehand?
Many parents assume that because they are adept at handling finances that their children will be too—by osmosis, perhaps? But children and young adults, especially those heading to college for the first time, often need to be shown how to be financially responsible.
You may hear about financial literacy as a key to producing financially responsible individuals, but a better term may be "financial well-being." The Consumer Finance Protection Bureau published several documents that advocate for consumers to achieve a state where they can:
- Fully meet current and ongoing financial obligations.
- Feel secure in their financial future.
- Make choices that allow enjoyment of life.
To achieve this state of financial well-being, one must be armed with more than knowledge. To make sound financial decisions, one needs to be able to locate and process reliable information related to those decisions. Where can your students get this information? While there are many sources available online and in print, students often need parental involvement in the process. It's time for "the talk" about financial responsibility.
Discuss the three parts of financial well-being mentioned above with your students. Talk about what it costs to actually live the lifestyle they are accustomed to living. Discuss appropriate use of credit cards; explore credit scores; help them understand a mortgage; and discuss how to find the best deal when shopping for a loan—especially if they will need to take out a student loan for college. It's OK if you need to look up financial terms like APR, equity or collateral—look them up together and learn together.
Lay out the problems with making only minimum monthly payments on credit cards—the required disclosure box on any credit statement can help show what happens when you pay only the minimum payment each month. Your children will most likely be shocked at the amount of time to pay off even a relatively small bill and the amount of interest that will be paid.
Find a loan calculator online and show them how much they will need to pay each month after they get out of college (if they have student loans). Ask them what they think they will need to earn in their first year at their first job to "feel secure in their financial future" and to enjoy the lifestyle they envision, knowing that student loan payments may be a given on top of a mortgage, a car payment and other expenses.
It's never too early to learn about financial well-being. So gather the kids and start the process of providing them with the knowledge they need to be successful. They will thank you later.