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How to Help Your Kids Prepare for Financial Independence (at Every Age)

Sending your child off to college is one of the most exciting and nerve-wracking milestones on your path to raising independent adults. It’s like the first day of kindergarten — turbo-charged.

They’re leaving home for the first time — probably living in a new town, managing their own time and schedule, adopting a new social circle, and discovering new things about themselves and the world. They also have more financial freedom and responsibility than ever before. Helping kids prepare gradually for managing their finances helps them feel less overwhelmed when they leave the nest.

According to a 2019 survey by Quicken, 63% of parents rated themselves confident or very confident in their children’s ability to manage their finances in their first year of school. Despite this, 35% of students said they incurred unexpected debt in their first year of school. A sobering fact: Almost 1 in 3 students said they hid their debt from their parents.

So, how can you set your kids up with the skills and habits they need to keep themselves clothed — preferably in clean garments — fed, well-read, entertained, and in the black?

Whether college is years away or looming large, there’s no shortage of strategies to help you plan, survive, and thrive through these most exciting — and expensive — years.

Got Diapers? New Parents Start Here

529 Plan Textbooks Piggy Bank College Education Fund

You’re overwhelmed with love, awe, sleep-deprivation, and laundry. You’re not even close to ready to think about college. Don’t worry. You can handle this one. We’re starting with the basics.

Baby’s First Investment Account

One of the best things you can do to jump-start your baby’s education and financial future is to open a qualified tuition plan — commonly known as a 529 plan. Think of it as a 401(k) that allows parents to save for educational expenses like tuition, fees, room and board, and books at accredited colleges, trade schools, and professional schools. As of 2018, you can also use 529 funds to cover public and private elementary and secondary school costs.

Like a retirement plan, you decide how aggressive you want your investment strategy to be. For example, when your child is young and college is a long way off, it’s often best to choose higher-risk investments with higher potential for long-term earning. But those are more prone to short-term losses. So as your child gets older, you can opt for progressively more conservative portfolios that protect you from losing money on your initial investment but yield a more modest payout. Many plans make these age-based adjustments automatically. Any money you earn on your initial investment is tax-free.

It’s wise to shop around and select your 529 with care. Plans vary by state, and you don’t have to live in the state where you open your plan. The Financial Industry Regulatory Authority offers a fund analyzer tool to help you understand the expenses associated with each fund.

Use the Vanguard college cost projector to help you get a sense of what tuition will cost when your little one heads to college so you can begin to set goals. Then, let Baby’s family and fan club know that instead of another onesie or stuffed animal, they can make a lasting impact by contributing to your kiddo’s education fund instead.

Because the custodial parent owns the account, a 529 plan doesn’t affect financial aid eligibility as much as a savings account in your child’s name would. Also, a 529 plan opened by another family member, like an aunt or grandparent, doesn’t factor into your child’s financial aid eligibility at all. So consider asking someone you trust to start the account for your child. You and others can still contribute to the account as often as you like. But the person who set up the account controls any money in the account, meaning they have the right to withdraw their principal contribution without penalty. Withdrawing any money earned on the initial investment is subject to hefty penalties, but it’s also possible to do. The account holder also has the right to reassign the beneficiary of the funds. So before a relative opens a 529 plan for your child, make sure you each talk to a financial advisor to be sure it’s the right option for both of you.

Finally, if Junior wins a full-ride basket-weaving scholarship or skips college altogether, you can change the designated beneficiary of the 529 plan and select another family member to receive the funds or even use them yourself for a later-in-life degree. You can also withdraw the funds from the plan to use for noneducational purposes. However, if you remove funds for nonqualified expenses, you must pay a 10% penalty on any money earned over and above your initial contribution. You are also subject to income taxes on the gains, and most states require you to pay back any state income tax deductions you previously claimed.

Baby’s First Budget

Once you adjust to the new normal of life with your tiny plus-one, take a deep breath, take a nap, get on Care.com to hire a sitter, and have a date night. Next, set aside a time to revisit the financial values and lessons you want to model for your kids as they get older. Take an honest look at whether you’re practicing what you want to preach. As parents, your budgeting habits eventually become your baby’s habits.

If you have a partner, presenting a united front is essential so your child isn’t receiving mixed messages about financial practices. Making a budget and regularly discussing it is one of the best things a couple can do for their financial future. If it wasn’t part of your routine before the baby, make it one now.

It won’t always be perfect, but a failed budget is a powerful learning tool. It’s hard to change something if you don’t have a benchmark to reference.

Teaching your kids about money is a lesson in planning and delayed gratification. As parents, you must follow the same model. Taking the time to refine your budgeting skills before implementing a budget with a child makes you a better teacher. It makes the experience better for everyone.

In a perfect world, we’d all be able to master this easily, but let’s be real. We haven’t all cultivated ideal financial habits, and there’s nothing like being responsible for a new life to whip us into shape. Parents who don’t have a solid financial foundation themselves often feel ill-equipped to teach such lessons. It’s OK — look to your network. Find someone in your circle who follows a budget and manages to save a bit too. It could be a family member, a friend, or a class offered in the community. Ask someone to show you the ropes. It takes a village, after all.

Pro tip: If you don’t currently have a budget set up, there are several tools available. One of my favorites is Tiller because it’s customizable and imports everything into Google Sheets.


The Toddler Economy: The Lessons Begin

Smiling Girl Playing Cashier Of Pretend Play Store

Congratulations! You have a mini-me. Preschoolers are startlingly perceptive and starting to understand how the world operates. Now’s the time to start paying attention to what they’re learning about the basic rules of economics.

A 2018 research review from the Brookings Institute shows that children begin to understand concepts like spending and saving as early as age 3 or 4. This age is a perfect time to create simple games and activities to pique their interest early on. Turning these early money lessons into a game primes them to stay interested as they get older and understand financial concepts better. There are several games you can play during both playtime and while running errands:

  • Set Up a Pretend Store at Home. Take goods from the pantry and make price tags using sticky notes. Fill a small change purse with coins or play money and take turns being the shopper and the cashier. The game teaches them the basics of commerce as they exchange money for goods and allows for age-appropriate counting or number-matching.
  • Play the Want or Need Game. At the grocery store, quiz your child on different products. For example, if they ask for candy, ask them if it’s a want or a need. If milk is on the list, ask them the same question. Needs get tossed in the cart. Wants stay on the shelf.
  • Start a Saving Jar. Find a jar or can, and label it for saving. Suggest that your child put some of the money they get into the saving jar so they can buy a toy or treat when they’ve saved enough.
  • Play Planning Games. Ask your child to imagine they’re taking a trip to space or the beach and imagine everything they need for the journey. Then tell them they can only fit three things in the spaceship or car. Work with them to plan and choose what to bring.

Remember, kids absorb money lessons way earlier than you think. Take a 3-year-old to an arcade or amusement park, and they start asking you for money in no time. After observing a few games or rides, they understand the fundamental concept: Put money in, get something in return. So don’t just limit teaching moments to games.

Parents can seize the teachable moments that happen naturally to teach critical financial concepts. For example, when you’re leaving for work, explain that you work so you can earn money to buy things like food and toys. Talk about people who start their own businesses, like restaurants or toy stores. Encourage kids to imagine what kind of business they could set up, like a lemonade or cookie stand.

You can help prepare kids for saving by pointing out real-life instances when something is worth waiting for, like standing in line for a turn on the swings or waiting for their birthday or a holiday to get presents. Then, when they show interest in pricey toys or games, rather than purchasing them right away, let them know the toy is a little more expensive and that you can’t buy it right now. Instead, they can wait for their birthday or for Santa to bring it, or the two of you can work together to save up to buy it by adding money to a special jar. At around age 4, you can begin to introduce the idea of making a trade-off. Are they willing to skip  a few less expensive toys in the future to have the more expensive one now? Just be prepared to follow through if you take this route.

Parents must strategize and agree on the ground rules. When you’re out shopping with your little cherub, they’re going to ask for things. They watch you put items in the basket, slide the card at checkout, and walk out of the store. Eventually, they’ll zero in on something they like and add it to the basket. Do you let them have a toy for good behavior? What kind of toy can they get? If the answer is no, do you refuse flat out, or do you offer some sort of rationale, like “We’re not getting toys today”? Decide how to handle the inevitable tantrum, and keep that united front strong.

Thinking through these things in advance lets parents give their child a consistent experience. This consistency not only results in better behavior but also provides the financial building blocks later on. Don’t underestimate the impact of your daily choices on your children’s money memories.


Filling the Financial Backpack: Lessons for School-Age Kiddos

School Fundraising Donation Charity Student Education

You got a little misty watching your big kid scamper off to their first day of kindergarten, then first grade. They’re beginning to make their own way in the world and are having more experiences shaped by people other than you. Spoiler alert: You’ll remember this feeling again in about 12 years when they move into their dorm room. Ready or not, it’s time to level up.

Gradually start to introduce the ideas of goal-setting, saving, and budgeting. You can also encourage them to seek out opportunities to give back.

Encourage Income

Provide opportunities for your child to have spending money. That can be from gifts, chores, an allowance, or neighborhood jobs. Allow them to experiment with their own money and to learn from those experiences.

Now is the perfect time to let them make mistakes with small amounts of money. For example, if they earned $15 selling lemonade and feel the impulse to make an unwise purchase, let them. It’s OK to offer some guidance ahead of time, but don’t overpressure your child to avoid the purchase. A few hours or days after the purchase, when they have their eye on something new, ask if they think the original purchase was worth it. Let them arrive at their own conclusion, and spend some time talking about whether they made a good decision. If they’re happy with their choice, talk about why it was a good decision. If they regret the purchase, ask them how they plan to handle their spending and saving decisions differently in the future.

Use Goals & Incentives

School fundraisers are an excellent opportunity to introduce the concepts of goals, incentives, and contributing to a bigger cause. Resist the urge to bring that fundraising form to your workplace.

Instead, work with your kid to decide on their fundraising goal and think about ways they can raise the money in the specified amount of time. Give them the support they need to help them succeed, track their progress with a chart or chalkboard, and reward them with little incentives along the way, like a toy they wanted or an ice cream date. Bigger fundraising incentives are usually built into these fundraisers, so when they reach their goal, they get the prize they picked. Be sure to reinforce the larger purpose behind the fundraiser to keep it from becoming all about the prizes.

Parents can apply this goal-setting logic to helping kids build their savings. Be sure to let them see you doing the same thing. Tell them about your thought process as you get ready to buy that new laptop, car, or their grandmother’s birthday gift. Make kids part of the family conversation about money to help them understand the idea of goal-setting and budgeting.

When there’s something your kids want for themselves, walk them through the same process. For example, if there is a new toy or video game they want badly, talk about the price and how many hours of work it would take for you or them to save up for it. Work together to come up with a clear plan for saving for the purchase, either alone or with your help. Set aside a special savings jar where they can see their savings grow as they get closer to their goal. Praise them for sticking to it and reinforce the goal and the timeline each time they add money to the jar.

Showing kids the money they receive relates to the work they do can help motivate them to save.

In kindergarten or first grade, parents can start teaching kids the value of money by letting them earn an allowance attached to age-appropriate chores and responsibilities. Explain that as a member of the household, there are a set of nonnegotiable chores that are their responsibility, like clearing the table after meals, making their bed, or cleaning up the play area. Let them know they’ll start receiving a small amount of money for doing these things. Younger children do better with a more frequent allowance, such as a weekly one. Hold them accountable by establishing and following through on consequences. For example, if they don’t do one of the expected household chores that week, they forego their allowance.

Around second or third grade, let them know you expect these things as part of being on the household team. Then up the ante a bit, adding a list of optional chores that allow them to earn additional money: things like feeding the pets, sweeping the front steps, wiping down the counters and cabinets, or vacuuming a room. Assign a monetary value for different chores, with quick and easy chores like wiping the countertops paying less, and more involved chores like cleaning the bathroom paying more.

As they become capable of more complex chores, around fourth or fifth grade, add new tasks to the list and adjust the list of expected weekly chores to include one or two of the previously added chores, such as feeding the pets. Give them a raise in their base allowance to correspond with the increased work and responsibility, explaining that as a big kid, they have more responsibility for helping around the house and that in return, they also have the opportunity to earn more.

Earned allowance introduces kids to the value of money and allows them to make decisions about how much they spend versus how much they save. Teach kids to divide up their allowance into “spend” and “save” and maybe select a charity or cause for a “give” category. Each week when you pay them their allowance, you can use three jars to divide the funds among each category. Keep a tally of how much is in each jar, and talk about what they’d like to buy, what they’re saving for, and when and how they will deliver their charitable gift. Will it be something nice they buy for someone else, or will they donate to a cause they care about, like the local animal shelter or food pantry?

Establishing a consistent process of goal-setting, earning, budgeting, and decision-making sets them up for both the financial and academic responsibilities they’ll face in college.


Awesome Adolescence: Fostering Financial Independence

Dad Showing Chore Chart List To His Three Children

Ahh, the tween years. Your child is starting to feel and act a lot more grown-up. They have a little more freedom, independence, and self-sufficiency but are more socially vulnerable than perhaps any other stage in their development. Social pressures keep them a lot more focused on wanting the clothes and gadgets the cool kids have. For parents, this means more requests for money and the things it can buy — which translates to more teachable moments.

Kids this age can learn more advanced personal finance concepts. You can vary how much you try to teach them based on the level of interest they express. But don’t stop reinforcing the fundamentals of goal-setting and saving.

Raise the Stakes on Chores & Allowance

Since kids typically start wanting more around this age, give them more opportunities to earn. Offering bigger household jobs like heavy cleaning, mowing the lawn, or cleaning out the basement helps them make more money. Some parents tie allowance to good grades, but this may not be the best route for all families. Tying worth to academics can be detrimental to the self-esteem of kids who work extremely hard for school but don’t achieve high grades as easily as an academically gifted sibling.

If raising your kids’ allowance isn’t in your budget, support them in looking for ways to earn money by doing the same kinds of chores for someone else: raking leaves, shoveling snow, or washing cars or windows for neighbors. That broadens their horizons and empowers them to socialize with other adults as well — an important skill when it comes time for those college or job interviews.

Do You Have a Spender or a Saver?

Observing how your child handles the money they earn can give you a general idea of their level of self-control. Do they spend their money right away, or do they patiently save it up and plan ahead? Have them practice saving some of the money that comes their way and offer them incentives to do that. For example, you can teach them about the concept of interest by deciding on an interest rate for the “savings jar” and adding that amount of interest each night or each week for a finite period. Seeing their wealth grow without them doing anything at all can be a tremendous motivator to keep saving.

Once they get the concept that money can earn money, you can help them open a high-interest savings account or invest in a low-cost index fund with a broker like M1 Finance so they can watch their money earn money — without it coming out of your pocket.

Financial educator Todd Christensen recommends setting up a weekly accounting session with your kids — for example, at the same time you give them their allowance. Use this time to go over how much money they have in each of the “spend,” “save,” and “give” jars. Talk about any interest they earned on their savings. Then discuss last week’s spending and a plan for the coming week’s expenses, like buying a birthday present for their brother or sister. It only takes 10 or 15 minutes, but it can also open up opportunities to discuss other financial issues and gets them comfortable talking about money.

Don’t forget to give them a pat on the back for showing financial responsibility, whether it’s deciding to put a little extra money into savings that week or achieving a financial goal they set for a specific purchase. A little positive reinforcement goes a long way in developing good habits, no matter your age.

As kids get better at saving, consider decreasing the frequency — but not the amount — of their allowance. For example, give them one lump sum biweekly or monthly rather than smaller amounts every week. Handling more money over a longer period mimics most adult paychecks in the real world and puts them in a position to learn how to plan and make money trade-offs.

It goes back to that preschool lesson on delayed gratification, and it’s one of the most critical financial and psychological muscles to build. The hard work yields dividends, literally and figuratively, when you have a young adult capable of prioritizing and making responsible decisions about their financial, academic, and career goals.

Open the Books

Around age 13 is a great time to start including your child in more household conversations about money. It helps them understand money as a finite resource that’s shared among the household and has the side effect of holding parents accountable for making sound financial choices.

We teach our children to say please and thank you, proper grooming, and how to eat a balanced meal. But for some reason, many adults think it’s taboo to talk to our children about what money we have or don’t have. Bringing children into the financial conversation is essential to giving them a realistic idea of what it means to be financially independent.

Christensen suggests using Monopoly money to give kids a realistic idea of household finances, including income and expenses. Set a realistic gross monthly income and place that amount of money in the middle of the table. Initially, your kids will likely look at the pile of money and feel like they’re rich.

Next, start taking money away. Be as realistic as possible, and include things they may not think about, like taxes, health insurance, savings, and investments. Then, move onto food, utility bills, gas, car payments, and expenses for school or extracurricular activities. As kids see how quickly the pile of money shrinks, they learn that life can get expensive, so it’s important to both save and prioritize purchases. The Monopoly money game can also help them learn not to ask parents for money over and above their allowance because they can now see that there isn’t much to spare.

You could take this a step further and begin to include middle school- and high school-age kids in meetings with a financial advisor or accountant if you have one. Including older kids in these types of conversations starts to give them hands-on, real-world knowledge of the options available regarding saving for college, gross versus net income, saving for a home, and saving for retirement. They don’t need to understand every detail and nuance. They just need to learn that these are things they’ll need to do one day too.


Early High School: Establishing a Balance

Teenager Boy Delivering Pizza Summer Job Part Time

In high school, it’s all about balancing independence, responsibility, and freedom. It’s time to continue those financial accountability lessons you started in middle school. If you ask any personal finance expert about the best things parents can do to help teenagers become more financially independent, you’ll hear a chorus of the same three answers: Let them make mistakes, have them manage a bank account, and let them get a job.

Get a Job

If possible, have your child start with a summer job so they can begin to be responsible for making their own money outside of the home and managing a schedule. You and your teenager can work together to decide what’s the best fit for them. Take into account their schedule, transportation needs, and skills. Perhaps they start with dog-walking (easy to get started through Rover.com) or babysitting in the neighborhood or as a junior counselor at a summer camp. When they get their paycheck, continue to use your financial check-in time to incorporate concepts like taxes.

Open a Bank Account & Give Them Financial Responsibility

If you haven’t already, set up a joint checking and savings account with your teenager and make sure they understand the ins and outs of managing both. If they have a job, have them look into setting up direct deposit or begin to deposit their allowance directly.

Help kids to become comfortable reading financial statements, developing a budget, and paying bills. If they don’t yet have a bill in their name, give them one to pay, like their cellphone or a subscription to a favorite app. Decide with them whether they want to have that payment automatically withdrawn from their account each month or pay it another way. Talk with them about the pros and cons of each. With automatic withdrawal, they need to make sure there’s enough money in their checking account at all times to cover the payment and avoid overdraft fees. If they’re paying the bill manually, they need to keep track of due dates or pay a penalty fee.

Don’t forget to teach kids to be savvy about identity theft by regularly checking their bank account activity, using strong passwords and changing them frequently, shredding paper statements with account information or Social Security numbers, and ensuring online purchases are secure. These are subjects to discuss during those financial check-ins you started in middle school.

Get Serious About Budgeting

Now that your teenager has income, bank accounts, and bills to be responsible for, it’s time to give them a structure for managing their money. Many financial professionals recommend the 50-30-20 rule for spending and saving. Have your child put 50% of their income into a checking account to use for living expenses, like their mobile phone bill or transportation costs. Another 30% goes into the checking account for “wants,” like entertainment or nonessential clothing. And 20% goes into savings.

If your child can put a larger percentage of their income into savings, by all means, tweak the ratio. For example, it could become 50% for savings, 30% for essentials, and 20% for wants. Choose the ratio that best suits your family’s needs and values, but be sure a bare minimum of 20% goes into savings without fail.

If your child has expressed a higher degree of interest in personal finance, you can begin to teach them about investing and encourage them to funnel a portion of their income into bonds, retirement, or a taxable brokerage account through a company like M1 Finance or TD Ameritrade.

Failing Up: Building Financial Stability on Small Mistakes

Acclimating kids to making financial decisions in high school prepares them for college, when you won’t be there to watch everything they do. That’s why it’s important to let them make some mistakes in high school. Allow them to experience the consequences of bad decisions — like incurring overdraft fees or overspending on a splurge. It provides opportunities for conversations about how to avoid those missteps when the stakes are higher.

As tough as it is, it’s also crucial parents don’t overreact. Calmly explain why it was a mistake, and help them understand how to prevent it in the future. If you get angry, they only learn to hide mistakes from you. You can still be your child’s strongest ally without bailing them out.

For example, if your teenager saves up money from a part-time job, let them buy that trendy jacket. Then, when they have a flat tire and can’t afford to get it fixed, let them sweat for a while. Allowing yourself to become your child’s financial safety net takes the risk out of their financial decisions, preventing them from developing their own critical monetary decision-making skills. Saying no to your child isn’t fun, but it’s crucial when it comes to helping them develop good financial habits.

Instead of offering to bail them out, help them come up with some solutions for how they can finance the repair. For example, they can start saving extra money until they have enough to make the repair, ask you for a loan (possibly with interest), or dip into their savings. Then have them map out a specific time-limited plan to save up, repay the loan, or replenish the funds they borrowed from their savings account while staying on track with their usual savings goals. Use your regular financial check-ins to make sure they’re sticking to the repayment plan.

Facing the consequences of wasteful spending helps kids develop some problem-solving skills and makes them more likely to plan to avoid putting themselves in the same position again.


Pre-College: Remove the Fiscal Training Wheels

Teenager Went Shopping Spent All Her Money

You’re making the campus visits, narrowing down top schools, perfecting essays, and finalizing applications. College is beginning to seem more real to your teenager. You’re both starting to feel a mix of excitement and trepidation. Your future college student is probably focused on the social unknowns of leaving their familiar world for something entirely new. Meanwhile, you’re preoccupied with running the numbers, studying financial aid packages, and looking for every scholarship you can find.

Now is the time to capitalize on the solid financial groundwork you laid earlier in high school. Expand the conversation to include planning for living expenses, credit scores, and student loans.

Test Out Those Roots & Wings

At this stage, ensure your teen is managing their own finances as much as possible. Your role is to act more as a coach than an active participant. Help your teen practice accounting for all purchases. Seeing that they’re spending $50 a month on something optional like energy drinks when they often have no money for gas at the end of the month can be a real eye-opener.

Keep doing your weekly check-ins, but try to resist the temptation to directly intervene unless absolutely necessary. Kids need to understand the potential repercussions of mistakes. If they know they can ask you to bail them out, they’re more inclined to make riskier moves in the future when the consequences are often more serious.

No Such Thing as Magic Money

It’s common for parents to take over the financial aid process by doing things like filling out the financial aid forms or even covering some payments. However, students at any age need to understand what’s going on behind the scenes. Financial aid packages can change each year, so they must understand that what they received this year can be different next year, budget accordingly, and only borrow as much as they need.

If the student doesn’t understand the loan process, the accrual of interest, and the consequences of missing payments in the future, they tend to think of student loans as magic money that appears out of nowhere to pay for all their expenses. Well-meaning parents can ultimately do their kids a disservice by not educating and preparing them for the loans they’ll be responsible for paying back once they’ve earned their degree.

Introduce the C-Word

Building a credit history is essential. But don’t rush into opening a credit card account for your child. Do talk to them about the importance of a good credit score and how to handle the credit card offers sure to tempt them when they get to school. Starting this dialogue can help you decide on the next steps. Let their responses dictate how you handle credit when they go to college.

Start by asking questions. Do any of your friends have credit cards? Can you explain how credit cards work? Do you know what happens when you don’t pay your credit card bill in full or at all each month?

Take this opportunity to teach your teenager about credit cards, credit scores, and the danger of overspending with credit. Do an Internet search for “credit card horror stories” so your teen can see real-world consequences of too much debt.

Until they meet the following four criteria, don’t allow students to have a credit card in their own name:

  • Making steady income for a year
  • Have a spending plan (budget) in place and a proven track record of sticking to it
  • Have $500 in their savings account for at least three months straight
  • Have gone one year without a declined debit card purchase or overdraft incident

Summer Before College: Build an Adult Budget

Graduation Cap Money Loans Savings Scholarships Education Cost

You now know where your teen is going to school and have a clear sense of your financial aid package and remaining expenses. It’s time to sit down with your newly-minted grad and work on a first-semester budget and spending plan so they can spend the summer saving up and preparing. Now is a great time to set up an account with a free budgeting app like Mint or another alternative that can help busy college students keep track of all their finances in one place.

Back to Basics: Money In, Money Out

Go over the income sources your child will have available to them, including savings, graduation gifts, bonds, part-time jobs, grants, scholarships, and loans. Break it all down into a monthly income. Be conservative in estimating what they can safely spend each month, and make sure to keep at least three to six months of living expenses tucked away in savings to gather interest.

Start by asking your soon-to-be college student to make a list of all the things they want and need to have while at college: tuition and books, groceries, dining out, entertainment, dorm room decorations, and a slush fund. Then have them prioritize the expenses from most important to least important. Next, assign a monthly cost to each item — and be realistic. Remember to factor in any potential changes in the cost of living for students studying in a new city. Deodorant costs more in Manhattan than it does in Milwaukee. You can use an online cost-of-living calculator to help them see what their expenses will look like sat school compared with what they are used to at home.

Add up the anticipated expenses and compare them to the projected income available. Working together at the start of the semester to build a budget provides your teen with a better understanding of the consequences of their financial decisions. Deciding to take a weekend trip to visit friends at other schools sounds fun. But it can cost a lot and make it challenging to cover necessities later in the semester.

Usually, they realize their wants far outweigh their income. On their own, students figure out they either have to cut some expenses or increase their income — or do a bit of both. This exercise also gives parents a chance to think about where they’re willing to offer additional support.

Repeat this entire exercise before the start of each semester. You can use your weekly financial check-ins to keep an open dialogue with your child about how it’s going.

Take Another Look at Credit

After you’ve evaluated your kid’s first-semester budget, you can revisit how to handle the credit card question. Only consider a credit card for your child if they have already proven to you they know how to use it and have the discipline to pay it off in full every month.

You can test this out by adding them as an authorized user on your credit card, where you can monitor what they’re spending and what they’re paying you back. Being on your card gives them access to credit in emergencies but protects their credit and gives parents some control. After a year or two as an authorized user, you can revisit having them open a credit card account so they’re building the credit history they’re going to need when they graduate. There’s no rush.


Freshman Finance: First Semester

College Student Freshman Excited For School Carrying Books

Congratulations! You did it again. You made it through the emotional roller coaster of seeing your baby leave home and head off to college. You’ve begun to adjust to an emptier (and probably tidier) nest while they’re away. Here’s how to make sure your student’s newfound freedom doesn’t undermine all the careful planning and preparation you’ve both put into maintaining financial balance.

It won’t be perfectly smooth. You may have to intervene occasionally. But with the foundation you’ve laid along with a little trial and error, your young adult starts to gain confidence in managing their personal finances independently and responsibly.

Keep the Conversation Going

You’ve already established the good habit of talking regularly about finances. Don’t let it stop now that they’re away at school. In fact, it’s more important than ever to keep the lines of communication open. Keep up the weekly huddle. It can help to pick the same day and time each week to make the habit stick. Use the time to ask your college student these questions:

  • How much money do you have in your checking account?
  • What did you spend your money on this week, and how much?
  • What bills do you have coming up this next week, and how are you going to pay for them?
  • How much money do you have in your savings account?
  • What large purchases do you have coming up in the next three or four months, and how are you going to pay for them?
  • What troubles have you had with income or spending this week?

Asking these questions regularly and calmly troubleshooting helps your child internalize the lessons as they learn how to manage their own money in college and beyond.

SOS: How to Handle Freshman Money Mistakes

Of course, there are bound to be speed bumps. There are many common money mistakes college students make. Be prepared and think through how to respond to these scenarios.

They Ask for Money

These requests are bound to come up. And parents who’ve previously provided most things for their child must set new ground rules about when they are willing to provide help.

For example, some parents agree to pay for books and academic expenses but let the student take responsibility for their own living expenses. Or parents can cover necessities like room and board and cafeteria costs, but the student is responsible for any incidentals, like entertainment, meals outside the cafeteria, a manicure, or weekend trips.

Ensuring they have some responsibility for their living expenses causes many college students to pause before making purchases and teaches them to be frugal. The weekly financial huddles also help minimize such surprises.

They Rack Up Too Much Debt

Resist the urge to solve the problem for your child. Be a supportive guide, but let your child lead the fight to dig out of debt. Parents can recommend contacts to make, questions to ask, and solutions to consider. But allowing kids to learn to problem-solve for themselves builds confidence that serves them for a lifetime. Even if the consequences of the debt are negative for a year or more, they’re young enough to rebuild without lifetime consequences. They will come out of the process savvier.

Unforeseen Emergencies

Emergency expenses are inevitable: the minifridge breaks, a phone gets lost or stolen, or a once-in-a-lifetime opportunity for a class trip comes along. You can’t plan for these, but you can lay some ground rules in advance to help make responsible financial decisions easier. For example: does the expense fall under academic opportunities? In that case, maybe you agree to pay for all or part of the cost. Does the cause of the expense fall squarely on the student — like a phone lost or broken at a party? In that case, send them to their emergency fund with a plan to replenish those funds on a set timeline.

Decisions over who covers which expenses vary from family to family. But if you’ve put the time in educating your child, you’ve already established a framework for these discussions, and your child has some emergency funds available to contribute.


Junior & Senior Year: Get Them Prepped for the Real-World

Young Woman Budgeting Calculating Bicycle

The transition from college to the real world after graduation can be jarring for grads and parents alike. But there are ways you can help to ease the transition.

Experience Life Outside the Bubble

By junior year, your college kid probably feels pretty comfortable and confident in the routine of college life. It’s an exhilarating feeling — and it’s exactly the right time to shake things up a little bit.

Start having conversations about what your child envisions for their post-undergrad life. Start working with them to explore the options and how each of them looks financially. If they plan to head directly to grad school or a year of service, how will they finance it, and what kinds of academic experience should they be looking for to boost their application? If they’re heading into the working world, where can they begin to get some related experience and begin to build a professional network?

Life in the real-world can be intimidating. Now’s the time to start looking for new experiences outside their comfort zone, like off-campus internships or volunteer work, so the transition after graduation isn’t such a shock.

Use this time to reinforce the importance of continuing to save too. Whatever your undergrad can put in an interest-bearing account helps bring their post-graduation vision closer to reality. Encourage them to reevaluate their budget to see if they can either earn more over the summer or put aside a larger percentage of what they earn. Even if it’s only an extra $10 a week, it’s a fantastic exercise in goal-setting.

Develop a Post-College Budget

The summer before senior year, help your future graduate start thinking about long-term financial planning. Waiting until the last few months of senior year can add stress to an already overwhelming time.

Start with coming up with a list of expected expenses upon graduation. Make as many versions as you need to, accounting for different possibilities. For example, make one version listing out their expenses if they live at home and one for if they plan to move out. Making both versions of the budget helps guide realistic decision-making over the year ahead. The list of expenses should include:

  • Student Loan Repayment. You most likely already know the monthly amount due. But you can also use one of the many online student loan repayment calculators to estimate their monthly student loan payment. Help your child decide whether to wait the allotted six months before beginning repayment or if they’ll get a jump start and begin right away. Also explore refinancing options if interest rates have lowered since the loan originated. Websites like Credible will provide them with multiple lenders in one place so they can compare their options.
  • Housing Expenses. Estimate what it costs to rent a place (with or without roommates) versus living at home. If they plan on an apartment, make sure to include utilities like electricity, gas, water, cable, and Internet. An internet search for “average cost of utilities” for the city and state they’ll be living in will give you a sense of what you can expect to spend each month. Take the opportunity to discuss renters insurance, and include that as an expense if they plan to get a policy. If they move home, which expenses will they be responsible for?
  • Phone. If you have a family phone plan, decide if you’ll continue to handle it as you did through college or if you’ll make adjustments to the payment plan.
  • Transportation. Will they need a car, or can they manage with public transit? Factor in any expenses related to transit fare, rideshare services, car insurance, gas, car payments, and car maintenance costs.
  • Food. Factor in the cost of groceries and eating out each month. Examining their previous spending can give them a sense of how much they tend to spend eating out. The Economic Policy Institute also offers a calculator that accounts for age, gender, and geographic location to estimate spending on food and other everyday household expenses.
  • Clothing and Entertainment. It can be tough to budget for clothing and entertainment since it’s one of the most variable — and one that can get out of hand the most easily. Look at what they spent on clothes, movies, concerts, or trips in college to get a decent sense of their miscellaneous expenses in life each month. Be realistic about what they will spend.
  • Fitness Classes and Memberships. College students are lucky enough to enjoy free access to the on-campus gym and fitness classes, but this won’t be the case after graduation. Remember to include the cost of fitness and recreation in living expenses, and explore budget-friendly options.
  • Savings and Emergency Fund. As tempting as it is to leave out a savings and slush fund, this is a crucial time to keep that good habit up.

With this list of expenses prepared, you and your 20-something have a rough idea of how much they need to earn to cover expenses and where there’s wiggle room. They have this summer and their senior year ahead to examine their income options. Investigate starting salaries in their field of study as well as contingency plans like waiting tables or landscaping in case they can’t find a job right after graduation.

And so the cycle begins again. But luckily, you have lots of practice, and a little planning and expectation-setting help significant financial transitions go a lot more smoothly.


Final Word

Financial education isn’t part of most public school curricula, which means it’s usually up to parents to teach their kids good habits and set them up for success. Even if we haven’t had a pristine financial track record ourselves, we want to see our kids thrive. And there’s nothing like that to help us overcome our own financial hang-ups and lead the way. If you feel you need backup, look to friends and family members to help mentor your kids to learn good money habits.

What are you doing to help your kids prepare to handle their finances responsibly?

Dana Mortensen
Dana Mortensen is a freelance writer and editor with over 15 years of experience covering health, science, human behavior, and travel. She lives in Philadelphia with her husband and black lab. When she's not writing or storytelling, you can probably find her hiking, traveling, or attempting some amateur carpentry (with inconsistent results).

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