Dollars and Sense

If you’ve been avoiding the other awkward talk you need to have with your kids—the one about finances—you’re not the only one. The truth is parents don’t talk to their kids about money on a regular basis, or at all.

That’s what a study from the American Institute of CPAs, conducted by Harris Interactive, concluded. In fact, 3 out of every 10 parents never talk to their kids about money.

These days parents are more likely to talk to their kids about matters of etiquette, good eating habits, the dangers of drugs and alcohol, and the risks of smoking than they are about money.

My experience of working with thousands of people over the past two decades is that most parents want to have money talks and teach their kids well; they just don’t know where to start, what to say, or what to do. They feel guilty because of their own lack of financial literacy, and they feel disqualified to teach their kids because their own financial houses are not in order.

Here’s the bottom line in all of this: if you do not talk to your kids about money, someone else will, and you won’t be happy with the message.

Financial Illiteracy

If you are hoping—and don’t assume you’re alone here—that by some miracle your kids are becoming financially literate in school, dream on. Graduating high school seniors regularly achieve failing grades of 52 percent and below in basic personal finance, according to Jump$tart Coalition, a group that promotes financial literacy in youngsters.

The fallout from this level of financial ignorance is enormous. Americans of all ages are flunking their finances. Many adults have no understanding of how to balance a checkbook, compare mortgage options, or manage credit card debt. The results from surveys, polls, and tests that measure financial literacy are grim: there’s a lot of financial ignorance going on.

I’m concerned for coming generations, not just about the overwhelming unemployment and national debt but the fundamental changes to our economy. I worry how our children will become equipped to make the right financial decisions when it comes to taking on huge amounts of student debt to pay for college.

How will this level of financial illiteracy affect our churches? Do your kids have any idea that the everyday choices they make regarding money and possessions are of eternal consequence? Do they understand the meaning of stewardship or that Jesus said more about money than any other topic? Do they know money is important to God and he cares a great deal about our money—more than most of us imagine?

The (Financial) Facts of Life

Even if your kids are in college, it is not too late to help them master the financial facts of life. But you need to get going. Time is of the essence.

The goal is to equip your kids with as much information and practical financial education as possible—as soon as possible—so they have the tools they need to make good decisions as they make their way into the real world.

Generally, young people view managing money as a symbol of maturity and independence. Expect them to be open to talking about it. Then, as you become more comfortable, they’ll become more confident and responsible. To make sure you have successful conversations, keep these tips in mind:

• Get your positive attitude on.
• Set a tone of confidence, openness, and trust.
• Laughter is good.
• No lectures. Make it an even exchange.
• Ask questions, and listen carefully to the answers.
• Don’t talk down.
• Make sure your kids know they can always turn to you for financial advice, and if you don’t know the answer, seek it out.

Next, your kids need to master three basic money skills to have enough financial knowledge to manage money at college: basic budgeting, how to open a bank account, and the four types of plastic. Here’s a brief overview of these three skills.

Basic Budgeting

A budget is simply the method by which you “pre-spend” a paycheck or other type of income, giving every dollar a job to do, and following up to make sure it did. A college student’s budget should not be complicated.

1. Work together with your child to come up with an itemized list of his or her regular monthly expenses. Include interest payments on all unsubsidized federally guaranteed student loans as a regularly monthly expense.

2. List total income, which may include money he or she has saved, scholarships, loans, allowance, and wages from employment during school.

3. Subtract expenses from income to see if the budget is reasonable.

4. If expenses are greater than income, start cutting wherever possible until the numbers agree.

5. Your children’s college budgets should include a savings strategy. Encourage them to make regular deposits into an account as they anticipate future expenditures, like a car, apartment, or student loans.

6. Your children should keep track of their spending every day by writing it down. Then they can compare their budget to their actual spending. This will help them hone and tweak their budget next month. Challenge them to keep tracking and adjusting until it becomes realistic, comfortable, and reliable.

Regularly review the budget you’ve developed together. Be sure your kids understand how important it is to maintain and follow this budget to avoid overspending and debt trouble. Also remind them it is not set in stone. A good budget can be adjusted every month as needed.

Opening a Checking Account

Your young adult should open a checking account at a bank or credit union near his or her college (for convenience). This may keep transaction fees lower because will likely be ATMs for that bank located around campus. Ideally, this checking account should require no minimum balance and allow unlimited free checking—something that is becoming increasingly difficult to find, but keep looking. Short of ideal, look for an account with these features: simple fees, if any; ATM or debit card access to the account; online or telephone access to account information; and overdraft protection.

To avoid bouncing checks, it is essential to keep accurate records. That means recording every single check written and/or withdrawal made from the account using an ATM or debit card. Though they may not write checks often, show your child how to balance a checkbook every month without fail. Most checking account statements give instructions on how to do this. They should also make sure to monitor their account regularly online to ensure their finances are in order and to safeguard against suspicious activity.

Fundamentals of Plastic

1. There are four kinds of plastic cards: debit, ATM, smart, and credit.

2. Ideally, a student should have an ATM card to access funds electronically and an all-purpose credit card with which to begin building a credit file.

3. If the child is under 21 and does not have an independent source of income, he or she may not qualify for a credit card without a cosigner. In that case, consider adding this child to your credit card as an “authorized user.” This will allow your student to begin building his or her own credit file without assuming any liability for the account. Just keep in mind all of your activity will be reported to his or her credit report, not only positive information. Hopefully, that’s all you have, but just keep in mind negative information will be reported as well.

4. A credit card isn’t your money, and it’s not free.

5. Charge only what you can afford to repay within 25 days.

6. A credit card shouldn’t be a money substitute for things you can’t afford.

7. When the credit card account isn’t paid in full, the outstanding balance collects interest charges.

8. Paying only the minimum amount due makes the bank rich and you pathetically poor.

With these three lessons under your kids’ financial belts (budgeting, managing a checking account, and wisdom about credit or debit cards), you’ll find conversations on money easier to start and much more enjoyable. In fact, while your kids gain wisdom and knowledge, you’ll build your own financial literacy as you work hard to stay at least one step ahead of them. Teaching always teaches the teacher.

Mary Hunt is an award-winning and bestselling author, a syndicated columnist, and a sought-after motivational speaker who helps men and women battle the epidemic of consumer debt. She is founder and publisher of the interactive website Debt-Proof Living. Connect with her on Twitter at @DebtProofLiving or her website DebtProofLiving.com.

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