As your children approach the post-secondary phase of their education, it’s crucial to instill sound financial habits that will set the tone for their early adulthood. These good money habits are essential, as they can influence how your children view their finances during their post-secondary education and beyond. It’s not just about saving; it’s also about understanding the relationship people have with their money.
1. Earning and saving money
For most children, getting an allowance has been the easiest way to earn money. However, as they reach their teenage years, parents should encourage them to earn money by getting a part-time job or summer work. This early experience will enhance their work effort and help them understand how you need to work hard to earn money.
At the same time, you want to encourage them to save some of their money for future goals. If they’re still living at home, having them save 50% of their income is not unreasonable. You want them to understand that saving money for a more significant purchase in the future is worth it compared to something that’s for the short term. For example, you could explain that they could buy that game now, but then they’ll need to work longer to afford their textbooks. Helping your child understand the benefits of delayed gratification has been proven to assist in developing better financial habits.
If your kids have a part-time job, that likely means they already have a bank account. You could encourage them to open a high-interest savings account and make automatic deposits to constantly grow their money. You could even take things further and explain to them how investing works. Investing early and regularly is often a sure way to see your net worth grow.
2. Budgeting and spending discipline
Budgeting is a core skill of personal finance that is best mastered early. Even though your children will have limited income and expenses, it’s still essential to show them how to make a budget and stick to it.
At the most basic level, a balanced budget is when expenses are less than income. However, you want to ensure that savings are part of the budget so they’re always working towards a goal. One simple task is to give them a practical exercise. You could tell them you have a monthly income of $2,500, and they need to allocate their funds to expenses, savings, and leisure without overspending. It’s also a good idea to show them how to track their monthly expenses manually or via an app.
By integrating these money management skills into their daily lives, your children will be better equipped to handle any financial challenges during their post-secondary education and beyond.
3. Using credit cards wisely
When used responsibly, credit cards can be a great tool for encouraging financial responsibility. However, when abused, they can quickly lead to a debt spiral. That’s why it’s vital to educate your kids about how credit cards work.
Start with the basics. Tell your teenage children that credit cards are a short-term loan that needs to be paid back when by the statement due date. No interest charges will apply as long as the entire amount is paid off. That said, if you pay anything less than the total amount, or miss the payment date, you’ll incur interest charges that could be 19.99% or higher.
Other credit tips you’ll want to educate your kids about include what a credit limit is, why you should stay below it, and how your credit score increases when you have good credit habits and the importance of building good credit from a young age. Speaking of credit scores, be sure to explain that their credit score is a number between 600 and 900. The higher their number, the more creditworthy they are, which is essential if they ever need a loan in the future, such as auto financing or a mortgage.
4. Exploring scholarships and loans
If you’ve opened up a registered education savings plan (RESP) for your children, it can help them pay for their post-secondary education. However, in the event that their RESP does not cover their entire tuition, you must encourage them to look into scholarships, grants, and loans.
There’s a misconception that scholarships are only available to students with high academic grades. While there’s no denying that scholarships like that exist, there are also ones awarded to students who volunteer frequently, are positive members of their neighborhood or belong to a specific community. Some schools even offer admissions grants to their students that are automatically awarded at admission. Parents should encourage their kids to look into these scholarship options and have them apply, as every dollar helps.
If scholarships aren’t an option, students could consider a loan. Every province and territory has a loan program to help students. Even if students don’t qualify for federal loan funding, they could try to get a student loan from their bank. As a parent, it’s essential to explain to your kids how interest works on these loans and how to devise a repayment plan.
5. Having open conversations
Many people say that having open conversations about money is arguably the most important lesson as it applies to all financial situations. Whether you’re in a lower-income household or have your kids’ RESP maxed out, having regular discussions about money can be beneficial.
From the grocery store to monthly rent/mortgage payments, there are money conversations to be had every day. Discuss the family budget and why you make certain decisions with your kids. It’s also okay to talk about your money struggles, as they can learn from them.
You can also involve them in financial matters, such as budgeting or even having them sit with you while you file taxes. Exposing them to these tasks will ensure that they don’t go in blind when they eventually have to do things on their own later in life.
Final thoughts
While some money lessons will be taught in school, it’s essential for parents to set good money habits for their children heading off to a post-secondary school. Even if your child doesn’t want to continue their education or opts for a gap year, the habits you introduce can carry on for life setting the right example and keeping the door open for tough or confusing money conversations will set your child up for success,
Barry Choi is an award-winning personal finance and travel expert. He regularly appears on various shows in Canada and the U.S., where he talks about all things money and travel. His website - Money We Have - attracts thousands of visitors daily, looking for the latest stories on travel and money.
