Teach your child financial independence
It's a great time for parents to teach real-life lessons about money. "In the past year, college savings plans may have had big losses, or a friend's parents might have lost a job or a house," says USAA member Susan Beacham, founder and CEO of Money Savvy Generation. "Our kids are paying attention."
While they're listening, start talking -- and help them gain financial smarts.
Kids clamor for independence, but when it comes to money, many young adults aren't as interested in becoming self-sufficient. Some of them, dubbed boomerangers, even move back home after college graduation or starting a job. But too much parental help might hinder a crucial rite of passage -- financial independence.
Nudge your kids toward financial literacy. The payoff: You won't be making waffles for your unemployed 30-year-old when you'd rather be enjoying an empty nest.
Ease your child into the world of self-sufficiency with a financial responsibility plan. "Decide with your spouse what financial skills you'd like to turn over to your child at what age. Then train him ahead of time so he'll be ready for each task," suggests Beacham.
For example, once your teen has experience with an allowance, increase the number of spending categories she handles. Birthdays are good milestones to establish new spending habits. "At 16, you'll have to pay for a tank of gas a month," you might say. By age 18, she might be required to pay half of her car insurance. The choices are yours. Never spring new money responsibilities on your child without warning. "Let your child know what you'll expect a month from now, a year from now and when he graduates. No surprises," says Beacham.
"Just a generation or two ago, families kept jam jars on the kitchen counter labeled rent, food, utilities and more," says Arun Abey, coauthor of How Much is Enough? Making Financial Decisions That Create Wealth and Well-Being. "Kids developed an innate understanding of money and budgeting."
You don't need to go back to money in jars, but share your family's monthly budget, suggests Abey. That way, when money is short, kids will know why and they can help brainstorm solutions.
Keep your teen's allowance modest enough that he's motivated to save for things he wants and eventually to get a job. If you're financially supporting your college-age kids, a small stipend will ensure that they'll need roommates and second-hand furniture. "Most kids won't be able to afford a high lifestyle when they graduate -- unless they go into debt. Do them a favor and help lower their standards now," says Beacham.
Require your child to talk with you before signing any financial contracts -- particularly for credit cards. A recent study by Sallie Mae, the country's largest student loan provider, reveals that the average college student carries $3,173 in credit-card debt. That's a 46-percent increase over the past four years. And nearly one-third of students now put their tuition on plastic. "If your kids talk to you before they apply for credit cards, at least you have one more chance to talk to them about other options," suggests Beacham.
At some point, your teen is sure to come up short of cash. That's a good thing, according to Abey, since it's the best way for them to learn to be more careful.
The cardinal rule: Never give teens who live at home advances on their allowances, unless you want to teach them to rely on payday loans and credit cards as adults. Instead, review your teen's expenditures. If he's unsure what he spent, consider requiring him to keep his receipts the next month -- as a condition of receiving his allowance.
If your college-age student asks for help with credit-card debt, brainstorm ways to pay it off, but don't write that check, says Beacham. "You're not doing him any favors if you teach him you'll always be there to fix his mistakes," says Beacham. Instead, talk about options like taking fewer classes or cutting back on non-necessities.