Teach financial responsibility early, prevent college woes late

Nebraska

Life lessons often are learned through mistakes, but when it comes to the expenses of college life some lessons are better learned ahead of time.

"Parents should begin to teach their kids about financial responsibilities as soon as they begin to recognize that money buys things," said Kathy Prochaska-Cue, University of Nebraska-Lincoln family economic specialist. "Age determines what benefits will result from saving money, but what is important is that a child has something in particular to work towards."

Young children aren't going to be interested in saving for college, but will begin to see how rewarding it can be when money is available for something they really want, the Institute of Agriculture and Natural Resources specialist said.

Parents can begin teaching smart money habits with an allowance. Along with the allowance, parents should offer advice on wise spending and the importance of using available money for a variety of purchases, Prochaska-Cue said.

"It's OK for parents to set family rules on where allowance money can be spent," she said. "As long as they contribute, parents have a right to see that their money is put to good use."

Involving kids with household financial responsibilities such as writing out checks for monthly bills helps them understand that money is used for expenses other than fun, Prochaska-Cue said. By the time kids have entered high school, they should be ready to open a checking account on their own.

Checks are fine while kids are still at home, but can be inconvenient while attending college. Debit cards usually are a better choice and save students the hassle of writing out-of-town checks, Prochaska-Cue said. Plus debit cards keep students from spending money they don't have on hand.

"Credit cards are a bigger fear for parents with college bound kids," Prochaska-Cue said. "People are used to hearing that all students get into credit trouble, but in reality it only is a small percent of students who go into major debt. College actually is a good place to learn how to handle credit."

Some parents choose to help with credit card payments until they are confident in their children's ability to handle the responsibility on their own, Prochaska-Cue said. However, there comes a certain point when parents need to completely let go and allow their children to fend for themselves.

"It's OK for parents to help with tuition and books because there is a definite time when these types of payments will stop," Prochaska-Cue said. "But the cost of things like entertainment and clothes should be left for the child to cover.

"Parents shouldn't bail out their child financially either. It's painful to watch a son or daughter struggle to get out of debt, but it is something that has to be done alone."

A set budget is one of the most effective means of avoiding debt, she said. Parents can help their children stick to a budget by discussing how to handle funds and plan ahead. Absolute needs and expenses such as tuition, rent, gas and food should be factored in first.

"Students need to think about different categories of spending and set limits for themselves," Prochaska-Cue said. "That way they won't take a month's worth of wages and blow them in one weekend."

Financial responsibility also includes keeping good records and understanding related risks such as identity theft. Records should be kept in a safe place, preferably in a locked box out of plain view. Students also are advised to open records in a discrete manner because a large portion of identity thefts are conducted by someone close to the victim, she said.

Date: 8/24/06

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