The need for college students to be financially literate is an often-overlooked but increasingly important task for parents. Many students are misinformed about essential financial facts. For instance, 61% believed paying late credit card balances removed notices about them from a credit report, while 60% believed checks or debit card usage builds credit, according to a 2015 U.S. Bank survey of 1,640 college students.
The good news: These students are open to learning from their parents. In fact, the U.S. Bank survey notes that 91% learned money management from their parents, and 55% cite their parents as their most trusted source for financial information.
Even better, many parents are happy to help. Sixty-nine percent of parents are "very" or "extremely" concerned with setting a good financial example for their kids, according to the seventh-annual "Parents, Kids & Money" survey conducted by T. Rowe Price in January.
But even if parents' hearts are in the right place, they might be unsure where to start. Here are five great tips for parents to prepare their children for a lifetime of financial literacy:
1. Ingrain healthy habits at a young age.
Parents should teach children "at the get-go" about money, says Jim Chilton, founder and CEO of the Society for Financial Awareness. He suggests starting by giving even little kids an allowance. Then teach them how to use it responsibly. He had his own kids donate 10% and save 10% of the allotted money before allowing them to spend.
It's tempting to give college students their allowance in one lump sum to make things easier, but John Bucsek, managing partner at MetLife Premier Client Group, cautions against it. "Installments ... prevent students from overspending," he says.
2. Teach them to budget.
Creating a budget an itemized look money coming in and money going out, often on a spreadsheet helps students figure out if they can afford a splurge at the local Italian joint, or need to stock up on the instant ramen.
"Students should start by looking at the funds they have coming in the door whether that's from a part-time job, scholarship money, an internship or a monthly allowance from their parents or other relatives," says Lynnette Khalfani-Cox, a money coach and author of multiple financial well-being books. Next, she says, they should research the activities they want to do in college and find out exactly how much those will actually cost. "Otherwise, they're just kind of 'guestimating' their expenses," she says.
And make sure students "think ahead and think seasonally," says David Helene, co-founder and COO of UniFi Scholars, which provides financial literacy and college financing education in the New York metropolitan area. Identifying significant spending milestones buying school books, traveling home for Thanksgiving, buying gifts for the holidays lets them "project how much money they will need moving forward."
3. Dole out credit cards carefully.
To OK a credit card or not OK a credit card, that is the question. The answer has a lot to do with how responsible your child is. If they use the cards sparingly and pay the bills off in full each month, credit card use can become the foundation for a strong credit score. That can help in getting an apartment, job or car after graduation. If they don't charge responsibly, it can not only hurt their credit, but quickly rack up debt.
Khalfani-Cox suggests parents first add kids to one of their existing credit cards so students can test-drive the experience under supervision. She says start by clarifying whether the card can be used only for emergencies vs. everyday purchases.
Another option is getting the student a secure credit card, which requires a cash deposit matching the line of credit. For instance, if someone wants $200 in credit they must deposit $200, which the bank can then withdraw if the balance isnt payed on time.
Helene suggests that students with their own cards set recurring weekly or bi-weekly payment notifications in their phone calendars "to ensure that they face no risk of missing deadlines."
Note: Know the fine print. The 2009 CARD Act says no one under 21 can get a credit card unless someone over 21 co-signs or can show an independent means "of repaying any obligation."
4. Encourage students to enroll in a financial literacy class.
A growing number of colleges and universities now offer seminars and workshops, often free, to help students manage their money. Many also have helpful links on their websites with detailed information and resources.
Have your son or daughter check the availability of such programs, and encourage them to take advantage. From small, private schools like Champlain in Burlington, Vt., which has a Center for Financial Literacy that offers workshops like Making Your Money Work for You and Buying Your First Car to large schools like the University of Texas, which offers Bevonomics, a personal money management education program there should be plenty to choose from.
5. Have them do what they do best: Go online.
Money management tools help keep students in tune with their finances, even if they don't have much money to begin with, says Alex Matjanec, CEO of MyBankTracker.com. One popular resource Matjanec recommends is Mint.com, which electronically gathers a person's financial information into one place, including accounts, cards and bills. It then tracks spending patterns, investments and more.
Helene suggests Digit, which connects to a checking account, analyzes income and spending and finds small amounts of money to safely set aside for each user, and the app Acorns, free to download, which invests spare change from everyday transactions into a portfolio.
Source - USA Today
Original Article - http://www.usatoday.com/story/money/personalfinance/2015/09/04/guide--financial-literacy--parents-teach-college-students/32325823/