3 Money Lessons Your Child Should Learn Before College
College is an exciting time. New classes, a new atmosphere, and seemingly limitless possibilities. But with that new-ness, there can also be a lot of fear. In addition to worrying about their ability to handle the course load and thrive without their parents and friends, many students wonder if they will be okay financially.
College costs a lot of money. So before you send your child off to school, make sure they are prepared to make good financial decisions that will allow them to have a bright financial future. Here are three money lessons your child needs to learn the summer before college.
Savings is more than “rainy day”
Most people would agree it is a good idea to save money, but not everyone agrees why. Before your child heads off to college, it’s important to talk about what a savings fund really does for you.
Some people believe you only need to save for a “rainy day,” and therefore only need a limited amount of money in your savings account.
Others believe a person’s savings account should go above and beyond the basics, to provide security and to enable you to take on exciting, once-in-a-lifetime opportunities.
That’s just the conversation you need to have with your soon-to-be college student.
Ask your child to think of their current financial situations, with and without savings. What if they were offered a job or vacation opportunity right now in a desirable foreign country? Would they have the funds to make it happen? Would they be able to say “yes,” or would their lack of savings tie them to their current job or location?
The sooner your child begins to see his savings account as more than a “rainy day fund,” the sooner he will take saving money seriously.
Learning the value of an hour
Hourly jobs are staples of the college experience, so encourage your child to get a jump on it with an hourly summer job before he departs for college. This is a great way to meet new people while taking an active role in his or her finances. It’s also a great way for a college student to learn the value of an hour.
Everyone has the same amount of time in a day, even though some people make a lot more money than others. Use this example to teach your child about diversifying their income with passive income. Also help them understand how developing a diversified set of skills / interests is important to wage growth and long-term employment prospects.
Passive income is recurring income you earn for work that you have already done. For instance, authors earning money from books they have written is passive income. Earning royalties for a product or idea you create is also a way to earn passive income. Investing, though, is probably the most common form of passive income.
Over time, earnings from passive income can greatly outrun earnings from hourly jobs, allowing people to enjoy a higher quality of life and a better financial situation in retirement. So teach your child this lesson, and encourage them to prioritize working on ways they can reap the rewards of passive income.
It is also important for people to have a diverse set of skills / interests, because you never know if what is lucrative one year will be lucrative the next. For instance, knowing a great deal about how to make a typewriter work was a good idea in the 1970s, because it made life easier if you worked with a typewriter. But nowadays, not so much.
Help your child experience the difference between hourly work, diversifying their skills, and passive income to motivate them to build wealth early on.
Budgeting and buying low-cost
When children first head to college, it is common for them to discover large box stores that try to sell college necessities to them. From couches and mini-refrigerators to cutlery and coffee machines, students can end up with a large total just purchasing the bare necessities.
But your child does not have to pay the big tab when it comes time to prepare for college life.
Teach your child that new is not always worth the price tag, when a used item would do the same thing. Consider checking out yard sales, Craigslist, and thrift shops to compare prices for new versus used items.
While doing this, a fun game you can play is to teach your child the difference between purchasing new and used items in terms of how much money they save. Have your child shop and compare the prices of new and used items. Challenge them to find the items they want at the cheapest costs possible.
Then, have your child subtract the difference between the average cost of a new item and the lowest price they could find. After your child makes their purchases, reward your child with the difference in price, and tell them to use the money as a beginning to their savings.
Getting off to a good start with 3 basic money lessons
College is an exciting, scary, expensive time. So make your child’s college experience a worthwhile investment before they ever set foot on campus. Teach your child these three money lessons before you drop them off, so you will know you have set them on a path toward financial responsibility and success.
This article was syndicated from Business 2 Community: 3 Money Lessons Your Child Should Learn Before College
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