by Lori Winesburg
It’s back to school time, which means parents are busy helping their children get back into learning mode. It’s also a great time to add a new lesson in their curriculum – one that will last a lifetime. Money management.
It’s best to begin teaching these lessons when children are young. Because they learn mostly by observing, take them shopping and help them compare prices of products. Ask, “Which one costs less and saves us money?” Parents might also consider giving youngsters a transparent piggy bank for capturing loose change so they can watch their savings grow.
When children are older, a weekly allowance can teach them how to be good stewards of their money, along with these principles:
● Identify “wants” vs. “needs.” When you spend freely, you’re not managing your money.
● Save, then spend. This helps avoid short- or long-term debt.
● Value working for money. When you earn your money, you think more carefully about spending.
● Comparison shop. Research saves money.
Like adults, children need to diversify. Divide money into three financial categories – saving, spending and giving. Income can be divided between saving and spending as parents see fit, and contributions can be made to the “giving” jar. A good rule of thumb for giving is 10 percent, which provides a great way for parents to start the conversation about giving to others. This practice mirrors life as an adult and is a good habit to form early.
It won’t take long for the power of the purse to teach children to save before they spend. With age comes the ability to determine whether saving for the “next big thing” is worth skipping day-to-day purchases that bring short-term satisfaction.
Parents may consider giving their child compound interest by matching a small percentage of their child’s total savings each month to demonstrate how money saved can grow.
College students
When the apron strings are cut, and the purse strings tighten on the first day of college, teenagers get a crash course in budgeting. If they haven’t learned by now, these young adults will see how quickly the little things, like that fancy morning coffee on the way to class, add up. “Free” and “cheap” are words to live by in college.
A great lesson for all college students is to look for money-saving and money-making options – everywhere. Online coupons, generic brand items, student discounts and generally living with less should be the norm until graduation.
Opportunities to sell no-longer-needed items such as old textbooks or clothes, and to work a part-time job can help build a few extra dollars. Babysitting, dog sitting or lawn work are other revenue options. Choosing the cheaper route by eating in, streaming movies at home or finding free entertainment also helps the budget.
Students who work should set up their direct deposits so that savings can be set aside first. Paying for items in cash also helps avoid creating debt and is a constant reminder of how quickly money disappears.
The biggest pitfall for college students is relying on credit cards. This is a mistake that can hurt them for years to come. Unless it’s possible to pay off the monthly balance in full, credit cards are not a good solution during college. They often result in high, unmanageable debt, paving the way for bad credit.
Spending mistakes are inevitable, but they can be good lessons. A commitment to save first, save early, save consistently and to track spending are among the best practices for developing financial acumen for consumers of any age.
Lori Winesburg is a Sales Manager for Arvest Bank. She can be contacted at 479-573-1779.
