By FPA Members Elaine King, CFP®, CDFA™ and Philip Herzberg, CFP®, MSF
Last Updated: September 16, 2010
On the initial National Money Talk Night, renowned personal finance journalist and media personality Jean Chatzky underscores the significance of sitting-down with your children and taking the pledge to engage them in a focused conversation about money matters. With studies substantiating that seven out of ten children learn the most relating to managing their finances from you1, it is your responsibility to reveal and elucidate appropriate information and values to your children about earning and saving money, living on a budget, and steering free of debt.
As a parent embarking on the first of numerous age-appropriate financial dialogues, what impactful insights can you articulate to your kids to navigate their development in becoming financially self-sufficient adults? Exuding a positive attitude towards having a healthy relationship with finances, you should clearly communicate and impart the following pivotal money talking points and essential financial literacy principles to your middle-school, high school, and college students.
Shaping Sustainable Money Habits and Virtues — Talking to Middle School Students
- Start by educating your children on saving, spending, and giving depending on their financial needs and goals. Capitalize on practical and vital hands-on learning opportunities for your children to understand various monthly basic financial costs and model responsible behavior (i.e. peruse and breakdown several monthly household expenses, such as grocery and cable bills, to stress the importance of budgeting).
- With your children now cognizant of the purpose of using a credit card, you should initiate and guide an informative conversation about the advantages and disadvantages of credit. Reinforce to your kids that in order to maintain a consistently good credit history, they need to budget wisely, pay all their bills on time, and keep accurate records of their spending. Take out a credit card, debit card, prepaid card, and charge card in front of your children, and explain the basic rationale behind their respective utilization for payments (i.e. debit card is linked to bank account, while prepaid card has been pre-loaded with limited amount of money).
Factoring in short- and long-term saving considerations and incorporating invaluable learning experiences, you should discuss setting up a reasonable allowance for your children and monitor parameters according to their progress in paying bills on time. Should your children have difficulties covering their expenses, suggest to them that you will tie household chores or outside jobs into their regular allowance to provide them with supplemental money to meet their payments.
Fostering Pre-College Financial Responsibilities — Talking to High School Students
- Make your high school children aware of the array of options (i.e. financial aid, grants and scholarships) available to them for college funding. Keeping in perspective that the average annual private college tuition is $26,274 and the average annual in-state public college tuition is $7,0202, you should have a discussion with your kids to identify possible family financial constraints, and if appropriate, encourage them to contribute to their college savings (i.e. part-time after-school job income).
- As your high school students prepare to leave the nest and continue to develop the financial tools essential to succeed outside of it, you should further their understanding and application of credit by setting low limit (i.e. $500) spending limits on a co-signed supplemental student card. You can also proactively teach and build hands-on credit skills by linking a debit card to their checking account to monitor spending.
- Educate your teenagers about the costs of car ownership and usage (i.e. gas, insurance and maintenance). Talk to your high school children about transportation and assess financial viability to determine if they should contribute to defray for car expenses.
Establish banking accounts to illustrate and cultivate money management skills in your high school children. Teach your teenagers how to balance their own checkbook and let them track their deposits and debit card charges linked to your accounts. In addition, show your high school children how to use the ATM, educate them about overdraft protection, and engrain the discipline of frequently monitoring various banking account transactions online.
Encouraging Vital Literacy Skills for Financial Security and Independence — Talking to College Students
- Do not forget to remind your college children to safeguard their personal and financial information on campus (i.e. do not give out your Social Security number or bank account numbers, and avoid banking or paying bills from a public place). Relay to your kids that they should protect their passwords and shred any paper documents with their credit card information and bank account numbers before putting it in the trash.
- Introduce the practice of negotiation by teaching your college children to call the toll-free number for customer service and attempt to lower the price of their cell phone bill (i.e. check to see if the company could do better with your phone bill and consider bundled plan alternatives).
- Emphasize the importance of building a solid credit record (i.e. buying your first home or car) and enlighten your college children on the provisions of the enacted Credit Card Accountability, Responsibility, and Disclosure (CARD) Act. Make sure your young adults under 21 are aware that to open a credit card account they need to show documentation of income or have you co-sign. By virtue of the CARD Act, discuss with your college children, that as a co-signer, you can approve credit limit increases. Persuading your college kids to use credit cards adeptly, you can reinforce reviewing with them how interest rate charges work and highlight the significance of charging only what you can repay each month except in an emergency. With the average college senior graduating with $4,100 of credit card debt3, it is imperative that your college children understand the prodigious responsibility of utilizing credit cards and handling personal finances.
- Apply your own budgeting tools and wisdom in teaching your college children to list and evaluate all their income sources (i.e. scholarships and work-study earnings) and track their fixed and variable expenses (i.e. monthly rent, car payments and food). Stress the need and discipline of frequently budgeting to keep tabs on saving and spending patterns.
Echoing Jean Chatzky’s pledge to “talk to [your] kids about money to help ensure they have the life skills they need to live responsibly and independently,” you should make every effort to follow-through on your promise and empower your children with the insights and capabilities to become financially competent and successful.
FPA member Elaine King, CFP®, CDFA™, is Vice President, Director of Wealth & Well-Being at Gibraltar Private Bank & Trust. FPA member Philip Herzberg, CFP®, MSF, is Director of Media Relations & Public Awareness for FPA of Miami-Dade.
1National Money Night Talk website, Questions & Answers
2College Board Trends in College Pricing, 2009 Edition
3Sallie Mae’s National Study of Usage Rates and Trends 2009, How Undergraduate Students Use Credit Cards