The high school graduation of your child marks a huge milestone in their life. They are about to embark on a journey to college and you have to make sure that they are prepared for it physically, emotionally, mentally and financially.
There are specific money lessons that you should have taught your child right now and it goes beyond helping them save for college. We’ve all heard depressing stories of how college graduates get out of school with more than enough debt to pay off in the next decade or so. It is tough to judge if most of these were necessary but one thing’s for sure, a lot of students are making financial mistakes because they did not receive adequate education about proper money management.
Teaching kids money smarts before going off to college
You want to make sure that before your high school graduate goes off to college, they are equipped with the right money lessons that will keep them from debt. While they are away, they will be taking charge of their own finances. They will decide how to spend the money the have on a daily basis. This is where it gets scary. We all know that it is the little things that we spend everyday that actually brought about our financial demise. Although it may seem small, when you combine them, it amounts to something significant that can compromise the more important payments that we need to take care of.
Here are some of the statistics that we got from both Statisticbrain.com and Creditcards.com which we hope can convince you to give money lessons to your children:
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86% of college students have more than $28,000 in loans while 14% have loans that amount to $54,000 and more.
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The average student loan debt is $24,301.
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60% of college students had to borrow money to help cover their school expenses.
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The past due on student loans amount to $85B.
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14% of student loan borrowers have at least one past due.
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37 million people have outstanding balances on their student loans.
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62% of students got their first credit card before heading off to college (spring of 2012 survey).
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In 2012, students owning a credit card from various income brackets have the following percentages: 53% of students from high income families, 31% of students from middle income families, and 29% of students from low income families.
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15% of monthly college spending were done with credit cards (spring 2012).
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41% of student credit cards carry $500 on their balances.
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Average student credit card balance in 2012 is $755.
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High-income students carry lower than the average balance – $521.
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85% of college students have no idea what a credit score is (Spring 2012).
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54% of college students say that the most important reason to own a credit card is for additional purchasing ability for unexpected situations.
Important financial lessons for your high school graduate
All of the statistics mentioned above paint a not so promising future for the finances of current college students. But while you may feel that student loans and credit cards are inevitable in your child’s future, you can make things better by teaching them specific money lessons. These are the lessons that will help them make the right decisions about their finances. Allow us to give you a couple of suggestions.
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Debt is not the only option. There is always an option to not be in debt. Student loans and credit cards may be necessary (education and credit history) but you can put up measures that will keep them from getting out of control. For instance, they can get a part time job to help pay for certain expenses that would have gone straight to their credit cards. Or they can apply for scholarship grants to keep student loans minimal or even non existent.
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Credit cards are not for everyday purchases. First time credit card holder sometimes go crazy when they get a hold of their first card. Introduce credit cards to your college student in such a way that they will understand the repercussions of irresponsible spending. Explain that it is not an extension of their wallet. They do not own the money being used to purchase and they have to pay that back – most of the time with interest. Their access to credit can give them a false sense of wealth – make sure they understand otherwise.
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Budgeting is the key. Most debts are a result of people not knowing their true financial capabilities. They overspend because they simply have no idea how much money they can afford to spend. Teach your child the basic budgeting lessons that will keep them from spending beyond their means.
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Saving is never a waste. When we were all young, we were taught to save but as we grew older, that was no longer properly implemented. Encourage your child to save by giving them only their allowance. If there is something that they wish to buy that is beyond their school or basic needs, let them save up for it. This is the core value that will encourage them to prioritize paying themselves first and starting as soon as possible (e.g. retirement).
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Wealth does not have to be displayed. Branded clothes, latest gadgets, flashy possessions – these are all unnecessary. You child must understand that their money does not have to be showcased in what they wear or use.
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Having financial goals encourages proper financial management. When you have goals, you get the motivation to save, budget and think about every expense that you make. Instill this lesson in your child to help them practice better money management skills.
These are but a few of the money lessons that you need to teach your child. Be careful about how you will instruct them and be patient. Monitor how they will spend their money in college and keep a respectful distance. Trust in their judgement but make sure you are there to step in before any major mistake is to be made.