There’s no question that teenagers and young adults learn a lot of different things in high school and college. But there’s one very important life skill that most high schools and colleges don’t teach: how to become financially independent.
So it’s often up to parents to provide some basic training in financial independence to their high school and college age kids. Here are Frontier’s 6 possible ways to do this:
- Encourage them to get a part-time job. There’s no greater feeling for many young people than getting their first paycheck. Receiving financial rewards in exchange for performing work gives them a taste of what the “real world” will be like when they are eventually on their own and responsible for taking care of themselves financially.
While you will probably be tempted to try to tell your children how to spend the money they earn, it’s usually best to resist this temptation and give them a lot of leeway in making spending decisions. Let them learn their own lessons about making wise and foolish spending decisions now — when the consequences aren’t nearly as severe as they might be later.
- Teach them how to create a budget. This isn’t to say, however, that you shouldn’t provide spending guidance on a broad basis. One of the best ways to do this is to teach your children how to budget. Learning how to budget is one of the most important skills leading to lifelong financial success, which makes it one of the most important skills you can teach your kids.
Start with their income and then add in their expenses, such as entertainment or a portion of their cell phone bill or car payment. Then work with them to make adjustments to make sure that their expenses don’t exceed their income.
- Instill in them the discipline of saving. Along with budgeting, saving is another skill that’s critical to lifelong financial success. Ideally, savings should be worked into the budget. For example, 10 percent of your child’s earnings could be earmarked for deposit or automatic transfer into a money market savings account. Once the savings account has reached a certain amount, a portion could then be allocated to higher risk-higher reward investments like stocks and bonds.
- Help them open a bank account. This will probably be required in order to get paid if your child gets a job at a business like a restaurant or retail shop. Accompany your child to the bank to help him or her complete the paperwork necessary to open a checking or savings account.
- Help them establish and build strong credit. Your child’s credit history will impact every aspect of his or her financial life — from buying a house or car to renting an apartment and maybe even getting a job. So it’s important to help him or her get off on the right foot when it comes to building strong credit.
Your child can apply for a credit card in his or her own name as soon as he or she turns 18. This is a big financial step for any young adult, so you should provide your child with a basic education about how credit cards work and explain the financial dangers that may exist if they aren’t used wisely. If your child is under 18, he or she can be an authorized user on your credit card account. This can be a good first step to teaching high school students how to use a credit card responsibly.
- Work with them to set financial goals. Sometimes it’s hard for young people to think ahead much further than next week. So sit down with your child and talk about some things that he or she might want to accomplish financially over the long term. Buying a car, helping pay college education costs and saving for a big trip or even a down payment on a house are some long-term financial goals that are often appropriate for young adults.
Please contact us if you have more questions about how to help prepare your children to be financially independent.