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Money 101: Financial Basics for College-Bound Teens

Jan 12, 2021 4 min read

Key takeaways

  • Working while in college can offer more than financial benefits—if your child has the time.
  • Smart budgeting—with all it entails—is the foundation of financial health.
  • With saving and investing, time is on your child’s side (yes it is).

 

Your soon-to-be high school graduate likely needs a lot of things: clean laundry, a steady flow of snacks, reliable Wi-Fi and money.

Chances are they can handle the first few. (OK, with laundry, maybe not so much.) But if they’ll be heading off to college (or even into the workforce), they may encounter a common pitfall in their newfound freedom: a lack of financial responsibility.

As the post-pandemic world reopens, so will the doors to uncontrolled spending. And since many high schools don’t teach personal finance, it’s important to prep your teen today with money lessons that can put them on the path to financial independence tomorrow.

Here’s a crash course for before they fly the nest.

 

 

Have them earn it

Nothing drives home the value of money quite like letting teens see the required work (and rewards) for themselves. Whether your child has been working part-time since they were 15 or has yet to experience gainful employment, now’s the time to plant the seeds for future money management skills.

True, finding work these days can be a chore. But even if your child doesn't land a summer gig, talk to them about the pros and cons of working at least a few hours a week while in school.

Although on-campus work may not pay well, many student jobs and side hustles offer decent rates—maybe enough to cover fraternity fees or midnight pizza runs—as well as the flexibility college students need.1

Yet besides the extra cash, studies have shown that students who work during college earn more after they graduate   PDF opens in new window than those who don’t. What’s more, they tend to come out ahead in interpersonal relationships, budgeting and time-management skills Opens in new window. Indeed, some schools expect students to work during their college years, either via co-op programs or something less formal. As an incentive, consider this bargain with your child: “You get a job and keep up your studies, I’ll cover your tuition, fees, room and board.”

On the downside, this all depends on a student having the time to devote to a job without undercutting their studies; their course load and extracurriculars could tell a different story.2 A student’s earnings could count against them when they apply for need-based financial aid. And research has shown Opens in new window that for students from low-income backgrounds, who tend to work longer hours, a job during college can do more harm than good.3

 

Teach them not to burn it

Once your child understands the value of money (including the work it takes to earn it), it’s time to teach them where to put it.

There are several things a high school graduate can do to increase their financial aptitude:

  • Create a budget:

    Apps like Mint, PocketGuard and Wally can measure inflows and outflows, provide charts and graphs for visual learners, show “spendable” cash and alert them when they’ve blown through the take-out budget.
  • Set up a savings account:

    Once a budget's in place, they’ll need to set up savings so that excess cash doesn’t vanish in impulse buys. Find a bank, whether on campus or close to home, that offers free checking, savings and convenient, fee-free ATM use for students. Have them start directing their extra cash into a savings account (and explain that eventually, interest rates will rise again).
  • Get a credit card.

    Credit cards are a great teacher of discipline, and college is a great time to start establishing credit. (Key rules for building their credit score: Spend a bit on the card each month, then pay off the balance in full—on time, every month.) Prepaid or secured-line cards with restricted access are great ways to help introduce how credit cards work without too much risk that your young scholar goes overboard—and learns a costly lesson.
  • Shop smart.

    To teenagers, money saved is money that can be spent. So, teach yours to bargain-shop, particularly for college items that can put a big dent in their budget—namely, textbooks. Sites like Chegg, BooksRun and, of course, Amazon enable college students to rent and buy textbooks—including even cheaper ebooks, if their courses warrant—at deep discounts, as well as sell used textbooks for cash.

 

Seed their savings

Willing to help your child to start saving? Have them set aside about $10 a week to savings and reward them with a “bonus” if they stay on or under their set budget: “If you’re under budget by $100 a month, I’ll match your $10 a week—and help pay for your Spring Break trip.” Everyone’s situation is different of course, but if you make them an offer they can’t refuse (and that you can handle), it could pay both of you back in the long run.

And once they’ve developed savings discipline, you can nudge them on to the next step toward securing their financial future: investing. After all, younger savers have a tremendous head start over those who start post-graduation. So, break out your old turntable, set the needle down on the Rolling Stones’ “12 x 5,” and let Mick Jagger preach the benefits of compound interest to your child: “Time is on my side.”

 

What you can do next

Once your college-bound child knows where they’ll be headed next fall, sit them down to discuss the pros and cons of working while in school. Preach the benefits of developing smart saving and spending habits, then open savings and other bank accounts for them (and, if you can, sprinkle in some seed money). Finally, have your child apply for the kind of credit card that can help them develop the creditworthiness they’ll need for the future.

Footnotes

1Chinh Ngo, “33 Flexible Jobs for College Students Opens in new window,” BestColleges.com, June 3, 2020

2Emma Kerr, “The Pros and Cons of Working While in College Opens in new window,” U.S. News & World Report, Dec. 30, 2020

3Madeline St. Amour, “Working College Students Opens in new window,” Inside Higher Ed, Nov. 18, 2019

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