Advice for Parents as Their Kids Head Back to School
One positive outcome of the financial turmoil over the past couple of years is that parents and kids are talking more frequently about financial issues. In the T. Rowe Price Parents, Kids & Money survey released earlier this year, nearly half of the parents interviewed said they are having more conversations with their children about money and the basics of saving versus spending.
And, yes, Mom and Dad, your children are willing to listen. In fact, 65% of kids said they had approached their parents to talk about money issues.
Unfortunately, the lessons don’t always stick. For instance, a majority of kids who get an allowance sometimes spend it all at once and many of them come back for more. As students head back to school, parents have a golden opportunity to take advantage of a prime teachable moment for kids of all ages.
Elementary and middle-school students: Start an allowance. When children enter first grade, they learn that four quarters equal ten dimes equal one dollar, and they have a more sophisticated understanding of just how far money will go and how to parcel it out.
Start with a basic weekly allowance equal to half a child's age. You can adjust that up or down, depending on how much you expect your kids to pay for.
Unless you’re very well organized, I don’t recommend that you tie the basic allowance to household chores. It’s tough to keep track of what the kids have done (or not done). And they should be doing some tasks without pay to lend a helping hand.
Instead, give the kids financial “chores,” such as paying for their own collectibles or refreshments at the movies. Giving youngsters a fixed amount of money—and certain responsibilities to go along with it -- teaches them how to make choices, and makes it less likely that they’ll spend it all at once and come back for more.
To teach kids the value of being paid for their labors, you can pay for extra household tasks on a job-by-job basis. That also makes it easier for you and the kids to keep tabs on what they’ve done.
As children enter middle school, you can expand their allowance -- and their responsibilities -- to include other expenses, such as mall excursions, after-school snacks with friends and movie tickets.
High school students: The average American family will spend more than $600 on clothes, shoes, school supplies and electronics, reports the National Retail Federation, so the back-to-school shopping season is a great time to introduce a clothing allowance. Nothing will focus your teen’s attention on wants versus needs more than having to fill out her wardrobe on a fixed income.
Mining her closet for things that are still wearable is a good first step. Then she can decide whether she really wants to splurge on a single pair of Juicy Couture denim leggings for $128 or get a couple of pairs from Old Navy for $34.50 each -- and still have money for new tops.
This is also a good time to help your kids set up a checking account, especially if they have earnings from a summer job. Community banks and credit unions may be more customer-friendly to teens than big banks. If your bank balks, you can always cosign for the account.
Another alternative is to give kids access to their savings account with an ATM card so that they can make deposits and withdrawals. The point is to give them more freedom (and responsibility) to manage their account, and avoid overdrafts, before they head off to college.
College students: It often comes as a surprise to parents and kids that they don’t agree on who’s going to pay for which expenses. And it’s an even bigger shock when the bills start rolling in a month or two into the semester. So cover all the bases before you drop your kids at the dorm.
Let your kids know, for example, that you’ll pay for textbooks, but to lower the cost they should look into campus book exchanges, discount Web sites, book rentals and digital books (see How to Cut Textbook Costs in Half -- or More). You’ll pay for the school meal plan, but beer and pizza on Saturday nights are on their tab. And tell your kids that they’ll have to share discretionary expenses, such as Greek fees, so they should think twice before pledging.
New laws covering bank overdraft fees and credit cards for young adults hit college students squarely in the wallet. For advice on how to handle those situations, see 5 Financial Lessons for College Students.