Throughout the middle and high school years, it’s only natural for parents to be focused on making sure their teenagers are prepared for the academic rigors of college. But there are also important life skills teens should possess when they arrive on campus.
Key among these is financial literacy: the ability to manage their money and live within a budget. Depending on your family’s situation, this may also be a great time to discuss who is paying for college and how. What better way to learn about the importance of saving than helping to contribute to their college fund, right?
Experts offer these tips for helping your teen develop some financial literacy skills, as well as preparing them for any expected contribution to the cost of their college education. (Hint: start early!)
4 Ways to Help Your Teen Develop Financial Literacy:
1. Give your teenager experience with money in middle school and, especially, high school.
Whether it’s with an allowance or income from a part-time job, make sure your teenager learns to stick to a budget before leaving home. Experts recommend parents set up a bank account for their teen and make them responsible for some personal expenses like, say, entertainment. It’s a low-risk way to get teenagers accustomed to living within their means. This is a skill that will certainly serve teenagers well at college.
Keep in mind that the real-life consequences of blowing a budget can be powerful, so resist the urge to save your teenager from mistakes, says Philip Schuman, director of financial literacy for Indiana University. “Don’t bail them out,” he recommends. “Let them learn to be resourceful and figure it out.”
2. Talk about money, including the cost of college.
Many of us feel uncomfortable talking about money, but we’re not doing our teenagers any favors by skipping this topic. Be upfront about what things cost and what you can afford—especially when it’s time to start thinking about college.
“It’s important to talk to your student about how college is being paid for,” explains Schuman. “In a lot of cases, students may not understand where the money is coming from.”
It’s also important to have these conversations well before your teenager applies to college, says Tim Gorrell, executive director of the Ohio Tuition Trust Authority, which manages Ohio’s 529 Plan, CollegeAdvantage.
“If you’ve started that conversation in middle school and into high school, it’s much easier,” he notes. “The last thing you want is for your student to get into a school that you really can’t afford because you’ve never talked about it.”
3. Be upfront about what your teenager will pay for.
Who pays for college? As you move into high school, the conversation about college costs should include what you will pay for and what you expect your teenager to handle. This is especially true if your teenager will be required to take out loans. According to the College Board, that includes about 70 percent of students attending college. “Students should understand their personal responsibility for those loans,” stresses Schuman.
Parents should also talk about whether they’ll expect their teenager to cover lesser costs, which can nonetheless add up. This includes things like travel to and from campus; books and other supplies; fees for fraternities, sororities, and other clubs; toiletries; clothes; and entertainment costs, which in some parts of the country—think New York City—can be steep.
“It’s important to consider how they’re going to fund their lifestyle when they are in college,” says Schuman, who advocates that students work part-time in college to help pay for these kinds of expenses. He points to research that shows that students who work 10 to 15 hours a week are better off academically than those who work more or less than that. High school students who work over the summer—and/or part-time during the school year—can also tuck away a decent sum before arriving on campus.
4. Save early and often.
One of the best ways for families to plan ahead for the cost of college is to consider setting up a 529 college savings account for their child and to contribute a regular amount each month.
“This is a tax-advantaged way to save for college,” explains Gorrell. “Money in these accounts grows tax-free, and withdrawals are also tax-free when used to pay for qualified expenses, which include tuition, room and board, fees, books and supplies, and computers. Families can even continue to save while their student is in college, to pay out of pocket expenses and maximize tax benefits.”
That’s advice you can take to the bank.