Thursday, November 06, 2014

Talking to Teens: Money Sense

Way back about a hundred years ago, when I started university, my tuition was just over $1000 per year. I lived at home with my parents during most of my degree, about a 20 minute walk from school, and on bad weather days I drove back and forth with my dad, who worked there. I worked part-time all the way through my undergrad degree and came out with the smallest student loan debt ever. I think it was $1600, for the one year I lived in an apartment with friends.

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Now my step-son has graduated high school, and he started college last year. His tuition is close to $6000 a year, and he chose a school in another city. You know, close enough to come home fairly regularly for laundry, but far enough that we won't drop in on him or expect him every week for Sunday dinner. He's on his own there, living in residence, eating off a depleting balance meal plan, and hopefully learning something about life in the real(ish) world. 

Needless to say, his tuition plus room & board cost way more than any teen could afford, so as parents we've been saving for this and are bearing the weight of the expense. It's our investment in his future, our gift to him, and we don't begrudge it at all. But it's important to us that he understands the costs and doesn't waste these opportunities or the money!

Did your parents ever say to you "money doesn't grow on trees"? Mine certainly did, and it's one of the many phrases from my childhood that I hear coming out of my mouth now. It's perhaps a trite saying, but it is the beginning of the conversation that can be started when kids are quite young. Money isn't magic or never ending; it must be earned and carefully managed. And as our children reach ages of greater responsibility the conversation can grow.

Heading off to college our guy had two main money areas to manage - his meal plan and his pocket money/entertainment expenses. He had worked the summer previously, and had money put aside from that. His meal plan was paid for by us parents, but it wasn't all you can eat, so it was important that he manage his balance so he didn't run out too soon.  He wouldn't be working through the school year, so we made sure he understood that only his meal plan would be replenished when needed.

If your teen knows that he has a set amount of money for the 9 months of school (not necessarily the full bank balance!), then he can set up a budget plan, dividing that total by 9 to see what is available to him each month. Carefully planning out how much money is reasonable for entertainment purposes, a new hoodie now and then, music downloads, and then sticking to that is the key. One approach to staying on track is to take out that set amount of cash each month and once it's gone, it's gone. It may not be easy when the end of the month comes and there's no money left for that night out on the town with his buddies, but maybe that lesson will stick.

Food can become a big expense, and so we made sure to set him up with some groceries and basic appliances in his dorm room. The more meals that can be prepared at home, the better for the budget. Before sending him off we talked to him about about saving his meal plan balance by making his own breakfast sandwich in his kitchenette, or frying a couple of eggs, or grabbing a bowl of cereal. All of these are easy options, and you can prepare them to eat on the run or munch away while you're going through your morning routine. This approach kept his meal plan alive until after the Christmas holidays last year, which we considered a win. It's amazing how much an 18 year old boy can eat!!

Do you have a teen about to head off to college or university, or a young adult about to head out on their own? It's important to talk to them about their financial future and arm them with the information they need to avoid starting out their independent adult life in a pool of debt. Even if you are supporting them through their studies, this is an optimum time to help them learn about financial planning and budgeting, to protect their future. Some debt may be unavoidable, but with careful planning and smart information, we can help our kids get the best start.

Here are four key tips offered by TD Canada Trust. Share these with your teens, and use them as a starting point for your conversation with them about personal finances and the importance of sticking to a budget.
  • Establish a budget. List all sources of income, like pay cheques, scholarships, family support, student loans – and known expenses, like tuition fees, rent, books and basic living costs. Anything left over can be allocated towards savings goals and discretionary spending.
  • Prioritize spending. Essential costs like tuition and rent should be the top priority, followed by any debts that are incurring interest. When it comes to discretionary spending, make sure splurge items mean something – like dinner out with friends versus eating a small lunch out every day.
  • Remember, credit is borrowed, not free. Using a credit card is a great start to building a healthy credit rating, but the balance should be paid off in full each month to avoid interest charges. These extra costs will eat into an already tight budget.
  • Stay on top of finances. Have a constant line of sight into what is owed, the interest rate and payment schedule. Have a plan in place to pay off student debt after graduation and increase payments as your income rises. This helps reduce the amount of interest paid, and allows you to start saving earlier for the next big purchase, like a first car or home.

Disclosure: This post has been brought to you by TD Canada Trust. All opinions on this blog, as always, remain my own.

1 comment:

  1. My parents started talking to me about this early on, and I am forever grateful! Our family financial situation changed unexpectedly, and I was able to pay for my own university education because I had been saving. Victoria Ess


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