How to Talk to Your College Kids About Money
Have you had “the money talk” with your college-bound kids? Chances are you’ve been so busy navigating school applications, acceptance letters, and graduation parties that you haven’t carved out time for a heart-to-heart about financial health.
But now that your kids are about to be on their own, it’s more important than ever to teach them about managing money and avoiding debt.
This article covers:
- the most common traps college students fall into
- how to prepare them to manage their finances
- tips and statistics for understanding Gen Z and how they think about money
Ready? Let’s dive in.
Common financial pitfalls for college students
According to a recent survey of 1,000 college students, over a third said they incurred unexpected debt during their first year of school. This suggests that many college-age kids haven’t been prepared to handle the responsibility of managing money on their own. Here are some of the most common money mistakes college kids face.
Bypassing the budget
It’s easy to assume budgeting is only necessary once you’re out in the world and earning a living. But college is one of the best times for kids to start budgeting because they don’t yet have to worry about major responsibilities like paying a mortgage or feeding a family.
Unfortunately, instead of committing to a budget, many college students wind up spending way too much of their limited income on things they don’t need.
Amassing credit card debt
For many new students enjoying their first real taste of freedom, the lure of a credit card can be hard to avoid. Credit card companies know what marketing tactics appeal to college students, and they don’t shy away from offering kids perks and schwag just for signing up.
If your kids don’t know how credit card interest and fees really work, they could start racking up debt, fast.
Misusing student loans
Like credit cards, student loan money can feel too much like fun money. That’s why many college students wind up using their student loans to splurge on things they want, rather than the school-related costs that money is intended for.
It’s far too common for parents not to want to scare their kids or make them feel guilty about how much school really costs — that’s a natural (and even noble) feeling. But not talking to them about those costs can leave them unprepared.
At the very least, be sure you understand what grants, loans, and scholarships your student will receive — and what account that money will land in.
Becoming a “career student”
According to The National Center for Education Statistics, only 41 percent of U.S. college students manage to graduate in four years.
A variety of factors cause students to stay in school too long, from switching majors, to not enrolling in a full course load each semester, to transferring credits from a former school to a new one (a notoriously challenging process).
The cost of those extra semesters adds up over time and can lead to greater debt — especially for students who need to take out additional student loans to continue their education.
Not telling their parents they need help
Unfortunately, many new college students fall prey to these financial traps — or others — before they even know what hit them. Once they’ve realized their mistakes, they often wind up being less than honest with their parents about the extent of their debt.
Make sure your kids feel emotionally safe telling you they need help. The more they believe you’ll be disappointed in them for making mistakes, the less likely they are to turn to you for support.
Talking to your college-bound kids about money, credit, and debt
Here are 7 key talking points and tips (with statistics) to help you keep your college-bound kids on the path to success.
1. Show them you understand
Before you start talking to your kids about finances, it’s important to recognize how their reality differs from the world you stepped into when you were a young adult. Gen X came of age and entered the workforce in a time of optimism and prosperity. Gen Z, not so much.
According to the Bureau of Labor, the average US salary in 1994 was $26,939. Meanwhile, the median price of a home was $130,000. So the average home cost about 4.83 times the average annual salary.
Today, the average US salary is $59,228. That rise is to be expected, thanks to inflation, but salaries aren’t keeping up with the cost of housing. The median price of a home in 2024 is $420,800, making it now 7.10 times the average annual salary.
In fact, the cost of a college education is more expensive today too, even after adjusting for inflation. That’s the world Gen Z lives in — it’s just plain harder to get by. So if you want your kids to listen, start by acknowledging that they really do have it tougher, which is all the more reason they need to plan ahead.
2. Reframe budgeting around their dreams
There are few things Gen Z hates more than being told how to spend their money. TikTok is full of videos of young people laughing while their parents stare in horror at the price tag on vintage sneakers. But that doesn’t mean Gen Z can’t save money — it means they save their money for different things.
And that’s okay. As long as they’re saving, not racking up credit card debt they can’t afford.
So sit down with your kids and put together a spending plan you can all agree on. Be crystal clear about the expenses you’ll cover vs. the ones you’d like them to manage, but make sure to leave them some room to succeed. If they get a job and work hard, they should ideally be able to buy a pizza once in a while and save up for vintage sneakers on top of the bills you’d like them to cover.
There will probably be some growing pains as your kids adjust to budgeting, and that’s okay too. The important thing is to help them learn to manage their money before they’re truly out on their own.
3. Talk to them about today’s biggest temptations
The truth is, your kids might already know more about saving money than you do. They probably have more than one retail or coupon app on their phone that you’ve never even heard of. The help they need is more around recognizing and resisting the temptations that Gen Z lives with every day.
Do you know about TikTok Shop? Videos selling everything from skin care products to pet accessories are bombarding your kids every time they’re on the app — all of them promising that this is the BEST, most AMAZING deal they’ve ever seen and it’s ONLY available RIGHT NOW before they completely sell out.
Right.
Talk your kids through the difference between actual product research and advertising videos that disguise themselves as everyday people.
4. Teach them how to use credit wisely
According to the survey of 1,000 college students mentioned above, 40 percent of those who signed up for credit cards during their first year of college say they later regretted the decision.
But owning a credit card doesn’t have to be an automatic “debt sentence.” In fact, credit cards can be useful tools for students who know how to properly manage them.
If you think they can handle the responsibility, teach your kids that credit cards can be used to build a positive credit history and credit score, just as long as they use them sparingly, pay their bills on time each month, keep their credit utilization low, and pay in full whenever possible.
Finally, let them know in no uncertain terms that missed payments can lead to an unending cycle of late fees and interest charges that can damage future credit opportunities, increase debt, and negatively impact their credit score — and their financial health — for years to come.
5. Educate them about scams and identity theft
Identity theft is a growing issue on college campuses. Scammers and identity thieves often target college students because they have what’s known as a “thin credit profile,” meaning they don’t yet have much of a credit history, which makes it harder for creditors and credit scoring agencies to pinpoint unusual activity.
Your kids probably already know that scammers use malware and “phishing” emails to try to steal their personal data, but they might not be aware that someone looking over their shoulder or even digging through their trash could end up in identity theft.
Another favorite scam is to leave corrupted USB drives around just to see who plugs it into a computer out of curiosity.
Make sure your kids are aware of the dangers of identity theft and what precautions they should take to avoid being victimized. At the very least, your kids should use strong passwords, shred all documents that contain personal or financial information (including credit card offers), and only make online purchases through secure websites they trust.
6. Get them excited for the future
Gen Z went through some key formative years during the height of the Covid pandemic. What was unthinkable to the previous generations became a stark reality for them. It’s about time they got to focus on something positive.
What do your kids love? What are their dreams? Talk to them about how their finances can help them achieve those dreams sooner than they might think.
No matter what they want to save up for, help them create a plan that can get them there while still covering their bills and responsibilities. Show them the real value of budgeting — it’s not about living in fear of spending money but about spending your money with confidence, knowing that you’ve planned for it.
7. Encourage them to use budgeting apps and software
At the end of the day, it doesn’t matter how your kids budget — as long as they have a system they can stick with. But you might want to remind them that glancing at their banking app once in a while isn’t the same thing as having a plan.
If they’d like to try an app, Quicken Simplifi is a great way for them to track their income, stay on top of their bills, see their credit card balances, and plan their monthly spending automatically.
Helping your kids stay on track
While your kids are away at college, it’s important to keep the lines of communication open. Let them know that learning how to manage money properly is a long game, that everyone makes mistakes, and that you might have even made a few mistakes they can learn from.
Talking about money is never easy, but having the conversation is essential if you want your kids to practice responsible financial habits once they’re on their own. With any luck, the lessons you teach them now will last a lifetime.
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