This was originally published on Monday, Ju;y 4 ,2016 in the Pacific Daily News. Click here to subscribe to the PDN.
Q: My son recently graduated from high school and will be attending college stateside. We will be giving him a credit card and a debit card. Do you have any financial tips I can send with him?
Congratulations on your son’s graduation! College years can define what your son’s financial future will look like. It is in these years that spending habits are formed and debt can easily start to stack up. Talk to your son about how money, debt and credit work. These tips are good for all that are heading out into the real world.
- Create a budget. Sit down with your graduate and create a budget. Include how much you will be giving them monthly. Include expenses such as rent/dorm expenses, food, laundry, household needs, school necessities, and of course a little for entertainment. If your child learns how to stay on a budget now, it will be much easier once he or she graduates from college.
- Debt. If you are sending your graduate to school with a credit card, add that to their budget as well. Teach your graduate about interest charges associated with a credit card and how it is important that the credit card be paid off in full each month. If they pay off just the minimum amount required, they could be paying off a $500 expense over several years. Instruct them that the credit card is to be used only for emergencies.
- Savings. Now is a good time to start saving. They are still independent but still under your care. They may be frugal enough to build up a savings that they can use once they are out of college. If they are getting a job while going to school, encourage them to invest in the company’s retirement fund. Teach them how, unlike debt, compound interest in savings can make you rich.
- Track spending. Today’s technology makes this easier than ever to track what they spend. There are free apps that can be downloaded to their phones or tablets to help them keep real-time budgets. They need to understand where their money goes and make adjustments as necessary.
- Wants versus needs. Explain the differences between wants and needs. Wants are what they would like versus needs, which keep them alive and sheltered. It is fine to have wants if they are budgeted. Teach them to be selective on their wants. Let’s say they want a pair of shoes. It’s fine to purchase a better quality of shoes that will last longer. Alcohol, high phone bills, and other quick-to-use services/items bring little to no return on the investment. It is fun while it lasts, but once it’s gone you can’t resell it.
- Money versus card. Swiping a credit or debit card is much easier than handing over cash. When they see money leaving their wallet, they can tangibly see the money leaving their possession. Unlike with a credit/debit card, the money is not seen until it is viewed in a statement. It is easier to stay on budget with cash than with a card.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.