Growing up, I had a savings account and an allowance. But as a teen, I didn't know how my parents budgeted their funds, and it never occurred to me to ask. Those conversations just weren't had in my family; you didn't talk to your kids about money matters.
Yet, financial advisors say that we learn our money habits at home, in childhood. And these are often the habits that we carry into adulthood — whether our parents intend them to or not.
"I had one client who was 'retail therapy' all the time," says Maria James, a financial advisor in Baltimore who runs Pocket of Money. The woman spent and didn't save, because that's how she grew up. "That was what she saw. Dollar went in, dollar went out."
But when parents act as money role models, it makes an impression on their children, says Priya Malani, a partner with Stash Wealth. Her clients are mostly in their late 20s and early 30s and she says many of them feel like money rules them, not the other way around. That's in part because they were never taught some basic financial skills at home.
"It'll be empowering for your kids to see you set and achieve financial milestones," she says. "Most of us feel powerless when it comes to our money, but it doesn't have to be that way."
While a teen's studies and busy social life may consume most of their time, experts say it's important for parents to instill some college budgeting tips into their children before they go to school. That's largely because the financial foundation parents build for their children at home helps them continue making smart choices when they're out on their own — when their decisions about debt, bank accounts and savings have larger implications for their financial futures.
Here, James and Malani offer some examples of what parents can help their students figure out about finances before they head to college.
At 17, students should start thinking about their own money goals even if it's only on a small scale. Before heading off to college, they need their own checking and savings accounts with an understanding that "a certain percent of your income should go into your savings," says James.
James recommends sitting down with your teen, with pen and paper, and a hypothetical amount, say, $1,000. Pretend that's a monthly income. How would they spend that? What are their wants and needs, and how far would that money go? While it's a hypothetical budget, a high school senior may have just a few months before they need to do it for real. She also suggests going over who — you or your child — is going to pay for what when it comes to college expenses.
"People think of a budget as a dirty word," says James. "It's not a restriction, it's a plan for your money."
Talk about any job expectations you and your child might have as well. Will your child need to work while in college? If so, why — for fun money or for room and board or tuition? Will they need to explore a work-study program or a part-time job? And how many hours should they plan on working? Discuss how much your child might have in spending money each week or month and how to stay within that cap.
Student Loan Refunds
If your child is taking out student loans, they may get a refund to use for books and supplies after the tuition bill is paid. When that money comes in, will your student know how to allocate it? Talk with your child about how to budget this money and which education expenses they can use it for.
Introduce teens to online budgeting tools they can use to help manage their money. Apps like Mint can link directly to their bank account and they can create budgets for everything from living expenses to entertainment and eating out. For the "digital native" generation, online tools are inherent and make it easy to quickly do a budget check in or look at their bank balance to see how much money they have to spend before ordering pizza with their dorm mates.
I don't recall my own parents giving me a budget talk. Nevertheless, they were careful with their funds — my dad's friends would tease him for being too tight with his money. As an adult, I realize how much of that I picked up. I didn't have to work in college, thanks to parental support and scholarships, but I earned enough as an editor at my college newspaper and in my summer jobs to cover my fun money. I wasn't exactly rolling in the dough, but I never went into debt. I even graduated with a little in the bank.
By sitting down with your child and talking through their budget and good money habits, they will head to campus in the fall armed with a solid financial plan.