Financial tips for a young adult with more independence

It’s happened. Your child has flown the nest and has settled in a college or university. With this increased independence, you may want to teach your child about finances by alerting them to a couple of key danger areas in managing money: spending more than they can afford and abusing credit cards.

Keep a budget

An excellent way for your child to start is by keeping a budget. If you can get this message across, you will have given your child the best possible tool for their financial education. As a simple budget exercise, your child should:

  • Keep every receipt.
  • Record all expenses by category, such as food, books, cell phone, transportation, clothing, entertainment, rent, etc.
  • Total the expenses at the end of each month.

Tracking spending makes it easier to separate fixed and necessary expenses, like textbooks or a meal plan, from discretionary items, like fast food and pub nights. With this financial record, your child can then ask: “Where am I spending more than I can afford?”

Budgeting will help your child distinguish between the things they need and the things they want. They can learn to think before spending and over time see their improved habit positively reflected in their monthly tallies.

Use credit cards wisely

In the credit world, students are unique. Who else can have no income yet still qualify for a credit card? Here are the top three credit-card mismanagement mistakes made by students:

  • Treating their credit card limit as “found money,” maxing out their cards and running up debt.
  • Making only the minimum monthly payment, adding to interest charges and increasing their debt.
  • Using their card for cash advances when they’re short on funds and running up interest charges right from the date of the advance.

As a parent, what can you do? Let your child know about the consequences of abusing a credit card. Students need to understand that using a credit card may not feel like they’re spending real money, but they are. In fact, they’re spending more than they may be expecting if they also pay the high interest rate on an unpaid balance.

Suggest keeping an ongoing list of credit card purchases to your child. Tracking purchases may help control spending and avoid a nasty surprise on the monthly bill. Maybe your child will go for the idea of only using his or her credit card when really needed – for emergencies or to make online purchases of necessary items, such as textbooks. Encouraging your child to start with a low credit limit is another way to help avoid unnecessary spending.

We all make mistakes

Managing money is a learning process. Don’t be surprised if your child needs your help to cover a $100 phone bill. Try to make it clear, however, that you expect it not to happen again.

In the end, it’s all worth it. If you get your child started on the right track, you can instill good habits that will last a lifetime.

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