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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