High school graduation represents a milestone for teenagers. For parents who have spent eighteen years trying to prepare their children to lead productive and successful lives, graduation is an indication that they are well on their way.
Your graduating senior may be ready to leave for college or get a job, but what does she know about money management, saving money, handling credit, and how to avoid the pitfalls of debt and financial crisis?
For most young adults, a single event isn’t typically what leads to financial crisis, but a lack of basic money management skills—skills they won’t likely learn in school. Parents need to take the lead in providing their children with information and hands-on practice that will lead to sound financial management down the road.
Here are a few things every graduating senior needs to know about money:
How to create and stick to a budget
Start with the basics: analyze your teen’s spending habits, create financial goals, and set spending priorities. Work with your teen to develop a budget. Estimate his monthly income, from work, odd jobs, allowance, etc., and his monthly expenses—everything from entertainment, gas, and cell phone to insurance costs.
If your teen is moving into an apartment with a roommate, he needs to consider what would happen if that roommate suddenly left—how would he handle the bills on his own?
How to use a checking account
This is an important skill whether your child is heading off to college or starting down her career path. Have her take responsibility for some of her expenses, even if you are providing the income, by letting her use her checking account to pay the bills. Have her sit with you when you pay the monthly household bills so she gets an idea of what it takes to cover groceries, utilities, rent, and other expenses. Consider having her sign up for a CheckWise course at www.CredAbility.org/checkwise, which will help her learn to manage an account responsibly and may help her get approved to open an account at a local financial institution.
How to save
If your teen doesn’t already have a savings account, help him open one. Talk with him about developing a savings plan and setting aside a portion of his income each month for savings and unexpected expenses. Consider matching some of his savings—a great way to teach him about the rewards that come from building a savings account.
How to use credit cards
Recent changes as a result of the Credit Card Accountability, Responsibility, and Disclosure Act will make it more difficult for students to get a credit card. The law states that consumers under age 21 who can’t prove an independent means of income or provide the signature of a cosigner age 21 or older won’t get approved for a credit card. In many cases, this will help prevent students from getting in over their heads.
A responsible first step in helping your teen learn to use credit wisely might be getting her a debit card that is tied to her checking or savings account and will prohibit her from overspending. If you do this over the summer, she will have a few months to monitor her finances online with your help before she heads off to college.
How to protect a credit score
A credit score tells potential lenders how well you have used credit in the past and how likely you are to repay in the future. The better your credit score, the better interest rates you will receive. Have your high school senior pull his credit report. This can be done for free at www.annualcreditreport.com. If he hasn’t established a credit history, he might not have anything on his report, but it is a good idea to monitor the report on a regular basis. Remind him that a credit report is a record of his past financial transactions and that an important part of using credit wisely is to annually review his credit reports. Checking his reports will help him spot errors and serve as a safeguard against credit fraud.
Mechel Glass is the former vice president of education for ClearPoint Credit Counseling Solutions. She is a U.S. Army veteran, entrepreneur, author, and educator.