5 Financial Lessons You Should Learn Before You Leave Your Parents’ House
For most of the high schools, the class of 2015 has just graduated. The hallways of these learning institutions are now quiet and will soon be ready to take on the next graduating class. But was that graduating class ready to take on the responsibilities of adulthood? They have taken classes in English, math, foreign languages, and various electives, but how many of them got a lesson in personal finance?
Some schools will tell you that this is the job of the parents. Parents should teach their children about how to handle their finances. However, it would be more beneficial if the students got it from both sides. There are many different lessons to learn when it comes to personal finance and it is our responsibility to make sure that our students have a diverse variety of resources at their disposal.
At the least, students should be armed with these five lessons before they leave to go off on their own. Not only should these lessons be offered to them, it should be practiced as well.
#1) Keep Track of What You Spend
This is a critical lesson for anyone, no matter your age. Think of it this way: if you were to sit down and think about where your money goes, would you be able to account for 100% of your funds? The majority of American’s aren’t able to account for around 40% of their money. We have a tendency of living in abundance, which means – for the most of us – we spend more than we think we do.
This is due to the simple fact that we don’t keep track of our spending habits. These days no one has an excuse for this ignorance because most of us are glued to the internet in one way or another: smartphones, laptops, or tablets.
#2) Get a Job
When you ask what most parents do to help their kids properly manage money, they answer with one of two things: “I don’t know” and “I provide them with an allowance, which helps them practice managing their funds.”
While it is true that actively practicing money management is a great way to learn, allowances aren’t that helpful. When you earn money (and don’t have the access to things like loans and credit cards), you are responsible for how you spend it and you feel more compelled to hold onto your earnings in order to save for items.
It is true that no parent really wants their student’s attention diverted from his studies. However, the value of earning money and managing it is priceless. Especially when it comes to your students getting thrown out into the real world (AKA “the deep end”).
#3) Your Expected Salary and Student Loans
Another benefit of having an income before college is that they know what to expect in terms of a paycheck at the end of the day. When it comes to paying off student loans, they’ll be in for a shock so ease them into the process by making sure that they read the fine print and that they know what they’re getting into. Your student loans shouldn’t exceed 8% of your expected income. Do the math: amount of loan and interest, divided by the repayment term. Compare that to how much your child should be making within the first two years of graduating from college.
#4) Live Below Your Means
Just because you have money, doesn’t mean that you need to spend it. Live frugally at first with occasional splurges every now and then. Save the extra money, or put it in a retirement plan. It’s never too early to start thinking about your retirement. Of course, this doesn’t mean that you can’t go out and have fun. Just plan smart and find alternate options (instead of blowing your entire week’s funds out at the club).
#5) The In’s and Out’s of Credit Cards
Having a debit card will do nothing for your credit. When it comes to building credit, your student will have to build their credit profile by using a credit card and paying it off at the end of the month. A crash course in credit scores and what happens when you have bad credit is also beneficial to teens going into the real world. This age group is like weak prey to hungry credit card companies.
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