The Money Talk
Millenials are savvy about many things, but financial literacy may not be one of them.
It’s October and kids have gone back to school. Whether they’re in high school or college, your kids live in a financial world nearly unrecognizable from just a few years ago. It’s certainly a different world from the one you or I grew up in.
And although millennials can program every gadget in your house, they may not know how to write a check, balance their checkbook (there’s an app for that), keep a budget or build credit. It’s easy to forget that most of us learned these skills from our parents and that social media may not be the best source for money lessons.
Do parents need to step in and have “the talk”?
The short answer is yes. While the Internet is ablaze with information, that doesn’t mean your kids are reading up on financial literacy. It’s worth investing some time to make sure the fundamentals are covered.
Banking & Budgets
My best advice is to start early. Most banks offer checking accounts for children as young as 13, provided they’re joint with a parent and the child has a valid government-issued ID (PennDOT offers ID cards for $30.50). Saving up the ID fee could be your child’s first budgeting lesson.
Amazingly, two-thirds of Americans don’t have a written budget to track their monthly income and expenses, according to Experian. And you know there’s an app for that, too!
Add to this the alarming statistic that nearly 30% of millennials overdraft their checking accounts and the importance of early budget training is clear. To avoid overdrafts and fees, have your kids link their checking to a savings account to avoid those steep fees. And make sure they know that these savings are good for more than overdraft protection!
Only 20% of millennials say they’ve saved for a rainy day, yet over 80% of college-educated millennials have at least one long-term debt that persists even when that rain starts. Your advice on budgeting can help them with the first statistic; encouraging them to apply for scholarships and grants can decrease the amount of the second.
Scholarships, grants and student loans all pay for college, but only the last option requires repayment. Student loans, while undeniably useful, carry potentially decades of repayment plus interest cost. Have you explained the power of interest to your child—both for savings and on student loans and credit card debt?
Even worse than the addition of interest to student loan debt is default, which can happen if a graduate can’t find a job. And this default is different from most other types of debt because it can’t be erased through bankruptcy.
If your child does take out student loans, you’ll need to talk early on about building credit. Student debt will drag down a credit score, even if it’s currently deferred.
A low-limit secured credit card backed by a savings account will serve a dual purpose: to reinforce that credit is still “real money” and create an active item on your child’s credit report—more indicative of how they handle credit than looming student loans still deferred. Once they’ve paid this card regularly for a year or so—since they understand interest and the wisdom of paying off the complete balance—they’ll have created sufficient credit history to close out the secured card and get a stand-alone one.
Working to create a positive credit history will help your child get other credit, such as auto or mortgage loans in the future. And it may even help with refinancing those student loans at a lower rate.
So, start the conversation early with your child to help improve their financial literacy. You’ll both be glad you did.
Matt Davis is Market Leader for the West Chester branch of BB&T. As a Borough resident, he enjoys serving the community where he lives. Like BB&T, Matt is committed to helping clients of all ages discover what’s right for them and their finances. BB&T partners with EverFi, the country’s leading education technology company, to provide interactive financial education to high schoolers. BBT.com.
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