To get you started, here are five pieces of money advice you can share with your kids:
1. Be honest about needs and wants
Parents often start teaching young kids the difference between needs and wants, explaining that food, clothing and shelter are needs, while toys, movies and trips are wants. For older students, however, the nuance can get lost when it comes to distinguishing between some needs and wants, such as:
- - home-cooked meals (need) vs. fast food (want);
- - school clothes (need) vs. designer duds (want);
- - student housing (need) vs. their own apartment.
Talk to your teen about these differences and explain that there's no value judgement against wants—after all, these are part of what makes life fun—but that it's important to see them for what they are when looking for ways to save money. Sometimes, there can even be an easy lower-cost replacement for a want—for example, getting some friends together to stream a movie at home instead of going out to the theatre.
2. Create a budget that encourages saving
While some students might think a budget is all about deprivation, help them understand what a budget really is: a system of spending that helps you achieve your goals. Without a budget, it's all too easy to spend every last dollar you've got coming in before you can even think about saving. By creating a budget that considers both monthly income and expenses, you can see where there might be opportunities to save.
Of course, there are various ways of setting up a budget and choosing a method that works with a student's personality is key to helping them stick to it. For example, a traditional budget sets a spending limit for each expense (e.g., food, accommodation, tuition, books, entertainment, etc.), and whatever amount is left at the end of the month goes toward savings.
But if money tends to burn a hole in your child's pocket, a traditional budget won't help them save since there will rarely be any cash left at the end of the month. Instead, a reverse budget (also called “pay yourself first") could be a better option, since a slice of earnings (part-time job salary, scholarships, interest income, etc.) comes off the top and is set aside for savings.
One simple budgeting tactic that encourages saving is the 50/30/20 method, which recommends spending 50% of your after-tax income on needs (such as housing, food, books, etc.), 30% on wants (such as dining out, entertainment and shopping) and 20% on savings.
If your kid is tech-savvy, they could also download a budgeting app to help them track their cash flow.
3. Be a smart shopper
We've all heard the advice to buy items when they're on sale, but discounts aren't always the bargain they're made out to be. Stores have various price points for the stock they sell, which means one retailer's "sale" price could be the same as another's regular price. So make sure your child knows how to comparison shop by finding out what similar products sell for elsewhere.
But, more importantly, remind students that a sale only saves them money if the discount is on something they were going to buy anyway. If, for example, a new pair of jeans is half-price, but you weren't planning to buy jeans because you already have a couple of pairs in good condition, that purchase would needlessly increase your spending rather than save you money.
4. Don't wait to start saving
Students often think they'll have an easier time saving when they earn more money, but the truth is saving is about a mindset of living within your means. After all, income is only half the equation, and many people end up increasing their spending every time they get a better-paying job or a raise. The real secret to saving is keeping spending in check.
If that argument doesn't sway your child, hit them with this one instead: the earlier you start saving, the more “free" money you can get thanks to the power of compound interest. When you put savings into a bank account that pays compound interest, you earn a percentage in interest on your deposits—and on any previous interest you already accumulated. In other words, your savings will snowball over time, and the earlier you start building that snowball, the faster it will grow.
5. Choose the right savings accounts
Now that you've convinced your child how important it is to save, help them select the best savings accounts to achieve their goals. For short-term savings—money that will be spent on tuition or other expenses in the near future—look for an account that offers access to the funds at any time without penalty, such as a high yield savings account.
A CD account may pay more interest, but there are often minimum deposit requirements and you can't withdraw the money until the maturity date, so it's best for longer-term savings like a car purchase or a down payment on a home.
If you expect to conduct a limited number of transactions per month, such as writing checks and making withdrawals, a money market account could be a good option since it pays more interest than a checking account.
Bottom line: Financial literacy helps college student's achieve success
Although financial literacy lessons may not be as intuitive as teaching your kids how to cook or clean, they are all important life skills that will set young adults on a path to success. So take the time to talk to high school and college students about the importance of saving money and managing finances while they're still young. It will not only help them to save money but also keep them from making costly mistakes.
Ready to learn even more tips you can share with your student? Check out more articles on student finances on the RVC Money Matters blog.
Tamar Satov is a freelance journalist based in Toronto, Canada. Her work has appeared in the Globe and Mail, Today's Parent, BNN Bloomberg, MoneySense, Canadian Living and others.
Sources
1. Milken Institute (2021). Financial Literacy in the United States. https://milkeninstitute.org/sites/default/files/2021-08/Financial%20Literacy%20in%20the%20United%20States.pdf
Most parents would agree that learning how to manage money is an important life skill. Yet only 21 states now require high school students to take any form of personal finance education, and just six states (Alabama, Iowa, North Carolina, Tennessee, Utah and Virginia) make a standalone personal finance course compulsory to graduate. 1 Perhaps it's not surprising then that only 57% of American adults are financially literate, leaving many without the skills they need to make smart money decisions. 1
But parents can fill in the gaps for high school and college students by teaching about money management and providing everyday financial literacy lessons on spending and saving.