When children embark on their journey to college, the influx of changes can be overwhelming. For many parents, the first instinct is to step in and mitigate their child’s anxiety and stress, offering help in any way possible. Although parents can’t do much practically when their children go to college, it’s not uncommon for parents to provide generous financial help throughout the college years. Beyond merely paying for tuition, it can be tempting to pay for trips, study abroad excursions, and more. But the reality is that children will benefit from learning important financial lessons in or before college, as opposed to after graduation when they step into the real world.
Here are three key financial lessons your child should know before heading into college.
Getting a Credit Card
When we boil it down, everything is related to credit. In helping your child acquire a credit card, you’ll be opening the door to teach them valuable lessons—from paying bills on time to building credit early. Learning to check their credit score and understand the factors that raise or lower their score can be useful, especially because college students often have more leeway with their credit. Ultimately, they’ll leave college better equipped with the knowledge of how credit can impact their life.
With the responsibility of a credit card, students can be empowered to take control of their finances while also understanding how interest affects their payments and how credit influences their current (and future) purchasing power. As a young professional living in an expensive city, I am immensely grateful that I started my credit journey so young. This allowed me to build a reputable credit score, which has allowed me to get apartment rental deals—such as putting down $0 toward a security deposit—and further, it gave me time to establish the habit of paying off my credit card each month.
Opening a High-Yield Savings Account
Becoming familiar with interest rates can also help students if they choose to begin contributing to a high-yield savings account, which can make them passive income. Although students may not have much to save, it’s important to instill the mindset of saving whatever you can, whenever you can.
With the addition of a high-yield savings account to their financial tools, your child will be equipped to understand the differences between a checking account, savings account, and high-yield savings account—it’s important they learn how interest rates can work for them in addition to how they work against them in the context of debt. I opened a high-yield savings account toward the end of my college journey simply because I didn’t realize such accounts existed. Looking back, I wish I’d started saving even earlier; nonetheless, starting young has allowed me to take advantage of higher annual percentage yields at a younger age, which maximizes my savings for emergencies.
Starting a Part-Time Job
During my orientation week of college, I landed an on-campus job. For me, this was crucial. I didn’t want to rely on my parents for pocket money to spend in the city or over the weekend with friends. Although this strategy won’t be the right option for every student, it taught me the value of money at a much younger age. I began to view restaurant meals or clothes as “two hours of work” or “one paycheck.” As such, when students begin earning their own money, they are often more motivated to save—whether that be for something particular or in general—versus spending money as freely as they would if their parents were financing their accounts.
I felt the real weight of these lessons when I studied abroad. In a foreign country, I was forced to pick a phone plan on my own and convert currency at the best exchange rate possible. I had to read through credit card disclaimers, contend with interest rates, and make my minimum wage income, all of which prepared me to be more independent and confident than I would have been otherwise. Now, postgraduation, these skills have resulted in a baseline knowledge and terminology awareness that helps me better research and navigate new financial hurdles, such as 401(k) contributions, rent payments, and lease responsibilities.
Ultimately, every child’s journey will be different. Instilling in them some of this essential financial knowledge before they leave the nest, or at the very least during their first year of college, can help them take advantage of their time at university to experiment, learn, and grow from their experiences with finances in a relatively controlled setting.
Given that personal finance is a subject rarely taught in high schools around the country—and in even fewer colleges—these are important lessons that parents must help their children navigate. Most students will eventually figure it out themselves, even if it is after graduation, but understanding these lessons early has immense value and will ensure your student is better prepared to face the world.
