Don’t underestimate the power of great credit management skills. We live in a society where using credit is the norm. If you want to be financially successful, you have to learn how to use credit to your advantage.
This is the reason why you have to teach your college kids how to manage their credit. Ideally, you want to start teaching them relevant financial lessons while they are still young. Some people start teaching their kids even while they are in preschool. There are basic skills that can be taught and that includes budgeting, saving, and smart spending.
As they get older, discuss more complicated topics with them like financial plans, investments, and of course, credit management.
In fact, the last one is very important when your child is about to go to college. This is the first time that they will experience debt for themselves. Even if its not student loans, it could be in the form of credit cards. You have to make sure they are prepared for it.
How to teach credit management to your college kids
So what can you teach your college kids about credit? More importantly, what do they have to know about managing debt?
Here are a few tips that you can use to educate your child about credit management.
Define the type of credit they will use
First of all, explain to them the types of credit that they will most likely encounter. On top of the list is student loans. Make sure your child understands the options that they have. What type of student loans can they borrow? Even if you don’t know anything about it, that’s okay. You can learn together with your kid. It’s best for you to know everything you can about this. After all, they will be paying this off for a long time. You have to know what they intend to do so you can make them feel that you are with them every step of the way.
Another type of debt that you need to discuss is credit card debt. According to statistics, 36% of college students in the US have more than $1,000 in their credit card balance. That amount may not lead to bankruptcy just yet but it should still be a reason for concern. You have to teach them how to use credit cards properly. This is one skill that they need to use throughout their adult life.
Create a budget plan together
Another lesson that will help them with credit management is budgeting. Don’t just teach them the principles of budgeting. Sit down with them and try to create an actual budget that they can use. You can both do your research about their options. Where will they live? What will they do? What kind of lifestyle will they lead? These are important questions that you need to answer if you want to create a realistic budget plan for them.
While you are creating the budget plan, make sure your kid understands how to do this on their own. They might have to change their budget plan every now and then. You have to do teach them how to do it by themselves while they are away. They have to get used to using a budget plan because it will protect their finances for the rest of their lives.
Review repayment plans
Apart from the credit lessons and budgeting, you should also educate your college kid about repayment plans. This will teach them to never consider using debt unless they know how to pay it off. This is actually a very important credit management lesson that will keep them from financial troubles in the future. And unfortunately, a lot of adults don’t really care about the repayment until the first billing statement comes. But that should not be the case. You should teach your child to be ready with a repayment plan before taking on the debt.
Before your child takes on student loans or applies for a credit card, make sure they understand how they should pay it back. If they get used to this process, they will develop a habit of being cautious every time they borrow money. It’s a good habit to have that will keep them from accumulating a lot of debts.
Consider possible sources of income
The last thing that you can teach your college kids is paying for their own debts. Make them responsible for the debts they will incur while they are still studying in college. Like maybe ask them to pay for the credit card debt they will incur. Or at least half of it. If they are responsible for their debt payments, there’s a high possibility that they will be very careful about their expenses.
But wouldn’t they have a hard time with their studies if they worked at the same time?
Of course, it would be hard. Then again, they won’t be alone in doing it. A report from Georgetown revealed that 7 out of 10 college students worked while they were full-time students. These students work between 15 and 35 hours a week. While working longer took its toll on their studies, these students will gain far more experience compared to those who did not work.
And that is something that you might want your college kid to experience.
How to support your children manage debts while in college
While the credit management lessons you will teach your kid is important, you should not forget about what happens when they finally go to college. They might not need help with debt relief just yet but they would want you to guide them so they won’t need it in the first place.
Although you’ll guide them through all of this, there are a couple of things you need to remember.
Let them make their own decisions
Your child is already in college. They should learn how to make their own decisions. You have to keep yourself from meddling in their affairs always. If they come to you for advice, don’t tell them what to do. Instead, ask questions about so they can determine what they want to do on their own. Let them make their own decisions and have them feel your support no matter what it is.
Let them make mistakes
This is difficult for any parent. If we can shield our child from getting hurt, we would. But that’s not the best way to raise them. We need to allow them to make mistakes so they can learn their lessons. You can only teach them so much. You have to let them experience it.
Let them feel comfortable talking to you
The last tip is to make sure that they will always feel comfortable talking to you. Whether they are doing great or if they are made a mistake, they need to be able to come to you. Having that kind of relationship with your child is really precious. If they make a mistake, don’t be judgmental. They have to feel like you have their back no matter what. That is the best thing that you can do for them. Sometimes, even if they are going through a difficult time, knowing that you’re there to silently support them, would mean a lot.