What older children need to know about money

Post-secondary education has never been more important. Personal finance writer Liz Weston notes that “a college degree today is what a high school diploma was 60 years ago,” i.e., the bare minimum for remaining in the middle class.

Whether a teaching degree or HVAC certification, it's going to make a difference in your child's life. The big question is how to pay for that training.

Making college more affordable

An emphasis on planning and saving means borrowing less — and maybe not at all — for higher education. It could even mean the difference between going and not going: A 2010 study from Washington University of St. Louis indicates that youths who plan to go to college are six to seven times more likely to attend if they have savings accounts in their own names.

I know everyone's sick of hearing this, but here goes: It's never been as important to have a degree. According to a 2014 Pew Research Center study, 22 percent of young adults (25 to 32) with high school diplomas only live in poverty. The rate is 6 percent among college grads of the same demographic.

Yet taking out too many student loans can lead to financial ruin. If your family can't afford to pay outright, emphasize that a low- or no-debt degree will mean a much less stressful adulthood. Explore options such as starting in community college (that's where I began my midlife college degree) and then transferring elsewhere, preferably to a state school.

Bonus points if the school is within driving distance. Commuting isn't much fun, but neither is adding an extra $9,500 to $10,830 worth of loans each year to pay for housing and meals. (Those scary figures are courtesy of The College Board.)

And if Junior insists on the “dream” school his high school counselor encouraged him to attend? Tell him exactly what you can afford to contribute, then have him run the balance through FinAid.com's loan repayment calculator, which compares estimated monthly loan payments to the starting salary required to afford them.

Do not shortchange retirement planning or co-sign for too many loans to put your kids through school. You can't finance your golden years. Don't be ashamed, either; according to a 2013 study from Sallie Mae, parents are kicking in 35 percent less than they did three years ago.

Credit: A necessary evil?

Two more important (and relatively recent) PF issues are using credit responsibly and building a strong credit score. A growing young-adult trend is toward paying with debit: The proportion of people aged 18 to 29 without credit cards went from 9.3 percent in 2005 to 16.1 percent in 2012, according to a FICO analysis. (The number could actually be higher, since the study didn't include the approximately 50 million American adults who don't have FICO scores.)

Gail Hillebrand, the CFPB's head of consumer education and management, thinks this can be a good way to learn smart money habits. Used correctly, debit cards encourage living within one's means (you can't spend what you don't have) whereas a credit card can feel like free money.

“The movement of young people toward debit vs. credit has been a very healthy development,” Hillebrand says.

The trouble is, debit cards won't help a credit score — and like it or not, this three-digit number has a lot to do with our children's financial futures. Lenders use it to determine interest rates for auto and mortgage loans, and a poor credit score can keep you from borrowing at all.

Young adults should also know that potential landlords and insurance companies may use credit scores to determine whether they'll get apartments or coverage, according to Liz Weston, author of “Your Credit Score, Your Money & What's at Stake.” Employers often check credit reports when evaluating a potential employee — one more reason to start checking your credit report and score early in adult life.

While the CARD Act of 2009 made it harder for young people to obtain credit, several options exist. If you trust your son or daughter, offer to co-sign for a card or add the child as an authorized user on one of your own cards. Or suggest he get a secured credit card; shop around for one without undue fees, however, and make sure that payments will be reported to the three major credit bureaus.

Not only does responsible use of plastic boost one's credit score, it can come in handy later on for true emergencies. Suppose your daughter's car breaks down and her emergency fund can't quite cover it. She has to get to work somehow. Putting the balance on a credit card means the wheels get repaired and the job gets retained.

Solvency begins at home

Some parents may not want to talk finances because of mistakes they've made with their own money: How can I teach what I don't know myself? What if I do it wrong?

But if you've ever paid a mortgage, financed a car, maintained a bank account, saved for retirement or even just lived within your means, you can model some basic money management skills.

Don't stop there, however. Get PF books from the library. Read newspapers, magazines, and websites like Get Rich Slowly, Money Talks News, The Motley Fool and Wise Bread. Look for free classes online, such as CNN.com's “Money 101” or the 22-week “Fundamentals of Personal Financial Planning” class offered through the University of California-Irvine's OpenCourseWare program.

Educate yourself so that you can educate your children. After all, you probably didn't know how to swaddle a baby or potty-train a toddler until after you had kids. Then you learned because it was your responsibility to do so.

So grab those teachable moments with both hands. Model responsible behavior. (Hint: Jokes about “retail therapy” or rubber checks will not help your kids.) Talk early, talk often — even if you think they're no longer listening.

The need for financial smarts can't be overemphasized. Knowing the right moves can mean a more secure and comfortable life for our children. Not knowing can create lives of scarcity and struggle.

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getagrip
getagrip
5 years ago

All sounds pretty, teach them all this information and they will use it, right? And how many people remember what constitutes a sonnet, or the date the Magna Carta was signed, or what the equation is for the quadratic formula? I’m not advocating not teaching, but just don’t be surprised if they somehow seem to “forget” much if not all of what they were taught and run up the credit card, take out a car loan, and do a host of things that freak your 40+ year old frugal self out. This is especially true if you are not exactly… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  getagrip

Just about ALL of the things we teach our kids — brush your teeth, pay your taxes, write those thank-you notes — “sound pretty” but may or may not be used once they leave the house. Any parent who thinks his or her child will follow orders slavishly is fooling himself. The point of what I wrote is that you must offer the information no matter what. We can’t control our kids; in fact, a new field of study called “emerging adulthood” indicates that some people simply don’t process the information until some time until some time in their 20s.… Read more »

HKR
HKR
5 years ago
Reply to  Donna Freedman

I’m interested in the “emerging adulthood” concept, and agree that as a parent you have to do your best to teach the life lessons, even if your kids don’t (or can’t) process it right away. If you don’t teach it at all, they won’t have anything to look back on and learn from when the day comes that things are ready to click. My parents didn’t have many money conversations with me, but they did talk to me about not amassing student loans. I listened and processed “big bills are bad”, but I don’t think I really processed the payments… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  HKR

Perhaps “emerging adulthood” will be the topic of a future post. I find it interesting myself.

Cindy
Cindy
5 years ago
Reply to  HKR

“there wasn’t much difference between a $100/mo student loan payment and a $300/mo payment, because I was going to college to get a good job that obviously had to pay plenty more than that, otherwise I wouldn’t be going.” Thank you, HKR! I think that’s the problem that so many people have trouble understanding when it comes to student loans. I felt the same way when I was in college. I know kids in college today who feel the same way. And the schools and lenders are pushing the idea that it’s okay to borrow large sums of money, for… Read more »

Paul
Paul
5 years ago

Don’t rule out military service to help with education. Some of the training new recruits get translates directly into college credit. Tuition Assistance allows enlistees to attend college part-time. By the time the Post 9/11 GI Bill came out, I was pretty close to finishing my Master’s, so I transferred it to my son. The basic gist of the Post 9/11 GI Bill is that it pays tuition and fees (for up to the cost of the most expensive state school), provides money for room (E-5 Basic Housing Allowance), and $1000 per year for books and school supplies. As long… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  Paul

True, but the military is not for everyone.

Lisa O
Lisa O
5 years ago

I agree with your article 100%. We need to teach our children about spending/saving and living within “your” means. We need to verbally teach but also need to live by example. Children are a product of their environment!

Donna Freedman
Donna Freedman
5 years ago
Reply to  Lisa O

Yep. As noted in the first part of the article, you have to walk the talk — and the talk has to be carefully chosen, e.g., “We can’t afford that” should be replaced by something like “That’s not in the budget right now” or “Our priority is to put money in your education fund.”

Cherie
Cherie
5 years ago

I think you’re quite right that it’s important to teach this – but also to live it. I have ALWAYS made it clear to my children, from the time they were old enough to talk about something like college, that a) they’d be paying for it themselves and b) they should be very careful to make smart choices so they would not be burdened by debt because then they might have to give up a career path they would enjoy for one less suitable simply to pay those bills. We often discussed other people’s choices, not in a judgmental way,… Read more »

Amanda
Amanda
5 years ago
Reply to  Cherie

I mostly applied to state schools back in 2000 when I went to college and I regret it. I actually ended up going to the one private school I applied to because it was by far the best package with scholarships – free tuition, room, and board. I wish I had applied to more private schools – you never know how much aid you might receive.

Donna Freedman
Donna Freedman
5 years ago
Reply to  Amanda

True — but as people are now finding out, you have to make sure that the great aid package (a) contains few to no loans and (b) isn’t “front-loaded,” i.e., really great the first year and paltry in future years.
Instead of mourning what might have been, I’d suggest focusing on the outcome: You got an education without loans. Good for you!

phoenix1920
phoenix1920
5 years ago
Reply to  Amanda

Deciding upon a state or private school varies greatly and there is so much more than the cost of the degree that is involved. In my state, the public universities are higher ranked and also have amazing relationships with helping their students obtain jobs. Further, because the public universities are better ranked, there are a ton of on-campus interview opportunities with huge corporations. In addition, bigger institutions can often have more student organizations within a person’s major, which helps to provide the student with leadership opportunities that are in their upcoming field. The overall price of school is only one… Read more »

Cherie
Cherie
5 years ago
Reply to  Amanda

Amanda I appreciate the perspective – we plan on adding some private schools once we have some scores and some ideas to narrow it down – because you never know 🙂

FindX
FindX
5 years ago

I have a daughter who is going to turn 11 next month. I am trying to prepare her for the adult world, but I find it quite difficult. I grew up very poor and I’ve made sure she didn’t have to grow up like me. But now, I feel she lives a sheltered life. She doesn’t know what it feels like to go hungry. She doesn’t know how tedious it is to rely on public transportation, or that sometimes you have to walk ten miles because you don’t have money for the bus. My husband and I make over $100k… Read more »

Cherie
Cherie
5 years ago
Reply to  FindX

It sounds like you’re doing a good job. Something I have done is voice my gratitude for things that we have which make our lives so much easier. This past winter we drove past a bus stop line of shivering folks and stopped next to them at a light. I said something like, “I am so grateful that we have a safe car that runs well so that we are not standing in the cold wishing the bus would come” More importantly I then shared a little about the times I was the one on that line, and it started… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  FindX

May I suggest Jean Chatzky’s book, “Not Your Parents’ Money Book”? It’s written for your daughter’s demographic. And yes, by all means keep presenting object lessons. For children, what’s in front of them is what’s always been. It would be good for her to know that you used to be broke and worked hard to achieve what you have now — and that she, in turn, will need to make her own money and her own way in the world. I’d also suggest Mary Hunt’s “Raising Financially Responsible Kids.” If your local library doesn’t have either book, ask for an… Read more »

slccom
slccom
5 years ago
Reply to  Donna Freedman

Or better yet, ask the library to purchase them for their collection.

slccom
slccom
5 years ago
Reply to  Donna Freedman

Or better yet, ask the library to acquire them for their collection.

LeRainDrop
LeRainDrop
5 years ago
Reply to  FindX

“I tell her she needs to prepare herself so that she can manage on her own and not need anyone to take care of her (like a husband). If she can take care of herself, then she will be able to choose a partner who she can see eye to eye. This is a worry for me because I saw how my mother suffered humiliation because she felt she had to stay with my dad.” This is a great perspective to pass along to her! Hopefully, it will also help her build confidence. My dad instilled this same value in… Read more »

Laura
Laura
5 years ago

Donna, this is an excellent article but I could use a bit of advice: what do you do if you have a teenager who is actually pretty good at handling money and the lines of communication are open, but talk of things like credit cards and credit scores and identity theft, etc. makes him declare that this is the most boring topic on Earth before he walks away? While DS knows that this is stuff he needs to know, he thinks trigonometry is both more interesting and more useful than learning how to navigate the waters of today’s personal finance… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  Laura

I don’t know exactly what to tell you about how to make him listen. Perhaps wait a year and try again? He could be too immature to care (and I don’t mean that in a pejorative way). At least he acknowledges that he knows he needs to learn it. Perhaps make it a condition of his living at home: You need to work on developing a credit history, and that means getting a checking account and a credit card (perhaps a secured one). Who knows? In another year he may be chafing to leave home and more interested in learning… Read more »

phoenix1920
phoenix1920
5 years ago
Reply to  Laura

What about asking him to read a book on the subject or having him listen to a CD? Sometimes, authors can be more entertaining than a talk with a parent. I loaned my Dave Ramsey tape to a friend, who played it for her daughter and they both laughed thru it.

Miser Mom
Miser Mom
5 years ago
Reply to  Laura

As someone who does a lot of teaching, I’d say the subject is “boring” to your son because it’s theoretical and/or remote. Credit cards are something he’s not actually DOING right now. It’s sort of like understanding all the different social security options is for me; I know it’s important, but it’s so far away that I don’t want to try to figure it all out until later, when it’s closer to actually mattering. You could just wait until he is ready for a credit card, whatever that means to you or him. Or you could start making it applied… Read more »

slccom
slccom
5 years ago
Reply to  Laura

It sounds to me like he has his priorities very much in order. At 14 his priority should be trigonometry. And preparing himself for higher education. It sounds like he is headed towards a technical degree, which is excellent. And he knows where he is in life, and doesn’t want to borrow trouble. As he gets older, he will begin to see that adulthood comes with exhilarating choices as well, and when he is ready for that, he will change his priorities. He will be well grounded with a good education that will be his foundation for all his other… Read more »

Cherie
Cherie
5 years ago
Reply to  Laura

He likes trig?

Ask him to explain compounding interest to YOU because you’re having trouble figuring it – that will teach him about it – then you can flippantly mention how much credit card debt costs in compounded interest in some later time and it will be meaningful

Lincoln
Lincoln
5 years ago

This blog has become more about “Barely Surviving in the Middle Class.” Pretty sad.

Laura
Laura
5 years ago
Reply to  Lincoln

I think this is a lot less about any supposed deficiency in GRS and much more about the reality of life in the U.S. today. The diamond shape of economics (most folks in the middle, a few at the top, a few at the bottom) is reverting back to the traditional triangle (a few at the top, a few more in the middle, and most at the bottom). Jobs needed to maintain a middle-class lifestyle increasingly require advanced skill sets (both education and natural talent) that fewer people have, so more people are competing for the shrinking pool of jobs… Read more »

Lincoln
Lincoln
5 years ago
Reply to  Laura

There are plenty of deficiencies in Get Rich Slowly, and they are worth discussing. Here’s one: You say “maintain[ing] a middle-class lifestyle requires increased skills.” But the reality is there are plenty of people with increased skills that are still struggling. And it’s because people have no idea what skills actually matter in the real economy. I know plenty of people with PhDs, JDs, and STEM degrees that don’t make very much money or can’t get a good job. They got good grades in school. Went to good schools. And didn’t take out crushing debt. But they are just treading… Read more »

James Salmons
James Salmons
5 years ago
Reply to  Lincoln

The issue you raise about matching education with jobs is one of the more important ones and certainly most students realize it all too late. When I got my first degree (BA) in was in history. At graduation I was told that the only two jobs it qualified me for was teaching history (a very limited field in view of the large number of graduates across the country) and becoming president (impossible for me since my reasonable, problem solving thinking is not extreme enough to fit either party). The education bubble may not be the next one to burst, but… Read more »

Kingston
Kingston
5 years ago
Reply to  Lincoln

I don’t get how this has anything do with deficiencies of GRS. How do you suggest that GRS remedy this state of affairs or better address it?

Lincoln
Lincoln
5 years ago
Reply to  Lincoln

@Kingston
How should GRS improve deficiencies?

I’d like to see some articles focused on how people are actually trying to turn their small fortunes into large fortunes. Or how they are turning their large fortunes into even larger fortunes. Enough of this paycheck to paycheck barely scraping by — let’s save $125 a month by using coupons, cancelling cable tv, and making our own furniture out of calcified compost. How do people maximize their life opportunities? Or has everyone just given up?

jim
jim
5 years ago
Reply to  Lincoln

Lincoln,
You sound very p/o – understandably so. I understand your sentiment, I do, BUT I’m wondering where your American Spirit is. Every generation goes thru their own trials and tribulations.

Jeff
Jeff
5 years ago
Reply to  Lincoln

@Lincoln,

I agree, as I said a good while back that when it comes to personal finance blogs it feels like there’s “nothing new under the sun” from the many times I see these same things repeated. This is the only site I bother to check anymore.

S.
S.
5 years ago
Reply to  Lincoln

Yep! I have a degree, but I can’t even get into full-time work that doesn’t require a degree. They want experience, which means I have to go indefinitely into work for free to try to build experience to try to get what is technically an entry-level job. And those are full of people in the same boat! So I’m having to work for free in an internship (in which I already have several years of experience…) To try to make myself a more likely candidate to get an internship or volunteer training in a subject that would actually give me… Read more »

HKR
HKR
5 years ago
Reply to  Lincoln

This post isn’t about you getting rich slowly (or barely scraping by), it’s about setting your children up so they have the opportunity get rich slowly.

Kris
Kris
5 years ago

Actually according to the 2014 data from Sallie Mae, parents are paying more than they had in the previous three years’ studies:
http://www.insidehighered.com/quicktakes/2014/07/31/parents-are-paying-more-college
Other news is that borrowing has dropped sharply from 27% to 22%.

Donna Freedman
Donna Freedman
5 years ago
Reply to  Kris

That info wasn’t yet available when I wrote this piece. I’ll be interested in seeing how much parents are paying of total costs vs. percentages; in the 2013 study they were chipping in an average of $3,568 out of pocket.

Prudence Debtfree
Prudence Debtfree
5 years ago

Is a good credit score really a vital thing? If people develop great money management skills, cars can be bought outright, and emergencies can be handled with an emergency fund. As for mortgages, I understand that it is possible, with a good down-payment and a record of steady employment, to secure a mortgage without a credit score through manual underwriting. People who never get a credit card and never borrow money don’t have a good FICO score, but they’re the ones I hold up to my children as financial role models.

slccom
slccom
5 years ago

There are a lot of other areas where a FICO score is needed. If your kids want to rent an apartment or home while they save up a down payment, auto and homeowners insurance rates, getting a desperately needed loan for a serious emergency, and undoubtedly other things. Unless they have a HUGE emergency fund saved up in their early 20s, they could run into serious problems. Also, it is very hard to rent a car without a credit card. It isn’t the credit cards that are “evil.” Getting and using a card once or twice a month and paying… Read more »

Jeff
Jeff
5 years ago
Reply to  slccom

Yep, I’ve gotten a bit tired of having to tell this to so many friends and co-workers in their early 20’s when they wonder why I have so much fewer issues than them with these things. Opening a credit card at 18 (this was back in 2000 long before the CARD act) and using it wisely for over a decade has been hands down the best thing for personal finance that I’ve ever done.

Donna Freedman
Donna Freedman
5 years ago

Developing great money management skills is a swell idea. But if you and your spouse each earn moderate wages, how long until you can save up that good down payment and/or enough to pay cash for a car? As for emergencies being handled with an EF…in theory, that’s a great idea. But again, if you don’t have a big emergency fund *yet* what will you do? Emergencies tend not to happen on schedule. I’ll give you an example. Twice I’ve had to fly out of town due to family medical emergencies. I was darned glad I had credit cards. Before… Read more »

James Salmons
James Salmons
5 years ago

There are two issues related to education and student debt that really deserve more attention than they get. First, while income and education are related, education is not always the same as getting a degree. Some jobs require certain degrees but there are many ways to learn. I remember Dave Ramsey taking a call from someone insisting they needed a degree and the accompanying big debt to get a computer design job. His reply was that he employed 65 people to do that kind of work and he could count on one hand the number with a degree. When hiring… Read more »

BD
BD
5 years ago
Reply to  James Salmons

I’ll bet that all 65 of those people that Ramsey hired without degrees were all a) Family members or b) Friends of the family.

Unless you know someone, or have an ‘in’ at most jobs, it’s highly unlikely you’ll even get an interview without a degree. There are so many people applying for a limited number of jobs these days (even computer jobs), that it’s easier for management to just toss out the resumes without degrees without even looking at them, in order to reduce the stack to a manageable size.

Money Saving
Money Saving
5 years ago

If money is an issue (and when is it not?), kids can go to college for free if they work hard enough.

As a parent, I would focus on making school their #1 job and many of these financial “nightmares” will simply be impossible. Parents can work with students to “engineer” frugality into their college experience. Between scholarships, smart housing practices, and creative ways to feed yourself, there really is no need to run up the debt unwittingly!

Don
Don
5 years ago

Donna,

I second just about all the advice you give about paying for college. There must be some mind sharing going on here because our advice is so close, as you can see from my June article at FamilyShare. (http://familyshare.com/help-your-kids-by-not-paying-for-college)

Fred
Fred
5 years ago

I disagree with the comment that a college degree is a necessity. Unless the plan is to become a doctor or lawyer, a degree may not be a necessity and not cost beneficial, especially if the child is entrepreneurial. There are numerous people who became very successful without a degree. Here are just a few (most of them are billionaires): Bill Gates (Microsoft) Steve Jobs (Apple) Steve Wozniak (Apple) Paul Allen (Microsoft) James Cameron (director and producer) David Geffen (Dreamworks) Jay Van Andel and Richard DeVos (founded Amway) John Mackey (founded Whole Foods) Larry Ellison (founded Oracle) Michael Dell (Dell… Read more »

James Salmons
James Salmons
5 years ago
Reply to  Fred

Absolutely true. Where credentials are required for licenses and the like there is no option perhaps, but often it matters little. For example, when I hire a carpenter to work for me I do not care where he/she went to school, or if they did. I want to know what they can and will do, either from personal knowledge or recommendations from people whose judgment I trust. Of course the point is not that formal education is without value, although we can learn in different ways. The real point is that winners will not blame their lack of current resources… Read more »

Donna Freedman
Donna Freedman
5 years ago

@ Comment No. 48: My own degree is a humanities degree, the Comparative History of Ideas. Those degrees sometimes translate to a variety of fields. But like your friend, I’ve created (or, rather, continued) my own small business, i.e., freelance writing.
At this point I’m not all that interested in working for someone. But that could change if the freelance market dries up.
I wish you luck in finding the right job, or in making one if necessary.

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