Are Your High School Grads Financially Fit for College

ORLANDO, FL – As the end of summer draws near, many high school graduates will begin anxiously packing their bags, meeting roommates for the first time and preparing for the adventures that come along with being college freshmen. Many parents share in the anxiety, hoping they’ve properly equipped their children with the necessary skills to succeed while living away from home.

InCharge® Institute of America, Inc., a national non-profit organization specializing in personal finance education and credit counseling, and publisher of YOUNG MONEY® magazine, has prepared a quiz especially for Mom and Dad to test how well they’ve instilled savvy financial skills in their children. Todd Romer, Executive Director of YOUNG MONEY and expert on personal finance issues for young adults offers smart advice and tips in the following quiz.

Answer YES or NO to the following ten questions. Check out the end of the quiz to see how financially prepared your students should be come September or if you?ll need to pull a few all-nighters before Labor Day rolls around:

1. Do you talk openly about finances at home, or did your student take a class on personal finances in high school?

If you have already been open with your child about finances, you are one step ahead of the game. Personal finances are one of the least discussed topics between parents and teens, behind only sex and drugs. Discuss the basics of credit cards, debit cards, checks, and when to use what. Continue that open dialogue even after they leave for school, as they will be receiving a lot of information on credit cards upon their arrival, and their financial picture will soon become more detailed.

2. Have you worked with your student to create a budget for the monthly expenses they may incur while away at school?

The simple act of creating a budget will teach your young adults how to think before spending, and give them a sense of control. A great way to start is to create a sample budget including income (job, financial aid, and help from home) and potential expenses such as rent, tuition, books/supplies, phone, food, laundry, clothing, entertainment, credit card payments, insurance, gas/car expenses and savings. Make notes on what expenses they are responsible for, and which ones you will cover.

3. Have you helped your student set up a checking account and do they know how to balance a checkbook?

Balancing a checkbook is one of the most important habits for good money management ? a skill not often taught at schools or by parents, but one that could save the headaches and expenses of overdraft fees. This is also a great ritual to help your student to focus on money matters each month.

4. If you are equipping your student with a credit card or debit card, have you discussed spending limits and the consequences of exceeding them?

While establishing good credit before you enter the “real world” is a smart move, it is important for parents to help your student set a spending limit, especially in the first year when they’ll find it easy to spend on movies, clothes and late night pizza delivery. According to a recent Nellie Mae survey, the average credit card debt owed by college students is about $2,300, with college freshmen carrying an average balance of $1,585. Make sure your student understands how dangerous it is to rack up a large balance, especially if they don’t have much money coming in.

5. Does your student know the APR on their credit card?

If your child is preparing to open his or her first credit card, it’s important that you review with them the annual percentage rate on the card, should they have to carry a balance. Even better, shop around online with your child to find a low rate card without an annual fee. A competitive APR could save a student a lot of money, and take years off the debt.

6. Have you discussed the negative impact of paying only the minimum amount on their credit card bill, should your student have to carry a balance?

If your student plans to pay only the bare minimum due on their card each month, they’re going to be in for a big surprise when they realize how difficult it is to pay off a growing balance. For example, if they make just the minimum 2 percent monthly payment on a $1,000 outstanding balance with 18 % interest, it would take 19 years and four months to repay and cost $1931.33 in interest alone. Parents should explain the importance of paying off as much as possible each month, rather than sticking with just the minimum.

7. Have you discussed identity theft and how to protect their credit?

With the rise in personal identity theft, it is important to teach your student how to protect themselves before it’s too late. They should review their monthly credit card statements carefully for errors, and never give their password or social security number out to anyone, especially over the phone or Internet.

8. Have you discussed the importance of building an emergency savings fund and how and when those funds should be used?

Should your students have an on-campus or part time job, they should be consciously thinking about putting away a percentage of their paycheck every week, for unexpected expenses. The sooner you teach your child the importance of saving and investing, the more prepared and independent they’ll be after graduation, and the less they’ll have to rely on their credit card, and YOU!

9. Does your student know what a credit score is, and what factors affect that score?

By the time your child graduates, their credit could affect so many areas of their lives, including the ability to rent an apartment, purchase a vehicle, and sometimes even secure their first job. The sooner they realize that, the more careful they will be with paying off their credit cards, and paying bills on time.

10. Do you as parents practice good money management at home, and set a good example?

The truth is that your children learned the most about money management by having watched you, starting from a very young age. If you’ve been less than stellar up until now on this front, it’s never too late. Start changing your habits today, and share your experiences with your children about the lessons you had to learn the hard way.

If you answered YES to most of these questions?You may proceed to the head of the class! It is clear that you have invested the time to teach your young adults the importance of money. “Financial literacy is a powerful tool for a young adult,” says Todd Romer. “If they are properly equipped with a solid base of financial knowledge before leaving for college, they are in a much better position to have a strong financial picture upon graduation.” Go ahead, Mom and Dad, give yourself an A+.

If you answered NO to most of these questions?It?s time for you and your student to hit the books!

OK, so there are still a few things that you need to discuss with your student before they step foot on campus. The good news is that there’s still plenty of time.

“It is so vital to begin teaching your children the importance of financial responsibility and establishing good credit, even before they are in their teens,” adds Romer. “College students are presented with credit opportunities before classes even begin, and they will surely be tempted to open up multiple credit cards, if just for the free t-shirt. Without the proper education and oversight, young adults can easily cause some serious damage to the bright future they?re working so hard to reach.”

If you need help determining how best to discuss finances with your children, YOUNG MONEY (www.youngmoney.com) offers a multitude of tips and articles on personal finance geared directly to college age students, including the interactive teaching tool, “Grab Todd’s Cash”, which offers a fun and risk-free way for young adults to learn financial skills online. Additionally, InCharge Institute?s website, www.incharge.org, offers a number of personal finance education tools for all adults, both young and “experienced”.

YOUNG MONEY?S articles are written by college students for college students. The magazine’s content addresses the financial concerns specific to this age group. YOUNG MONEY covers a variety of money related matters including: saving/investing, credit cards, career choices and entrepreneurship. To learn more, or to request a free subscription to the magazine, visit www.youngmoney.com.