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If you’re a parent who is worried that your kid’s school isn’t preparing them for real life, research says that your concerns are founded in truth. Most American high schools do not prepare teenagers for the real world. Additional research has found that while future generations take on even greater financial responsibility (with the cost of education, housing…and everything…always rising), they also tend to be financially incompetent. Maybe you hope that college will teach your kids a bit about the real world. While it will teach them to do their own laundry and troubleshoot some life issues without mom and dad around, it’s still not an accurate financial representation of the real world. In real life, there isn’t a meal plan that makes every meal at the cafeteria roughly three dollars. And renting an apartment is nothing like sharing a dorm.
You see parents who shelter their kids from financial realities, and you know that they mean well, but they’re only sparing them mild discomfort now in favor of major issues later. If you don’t want to be that parent, here are financial reality checks you can give your kids, before life does.
Give them a realistic allowance
Put some thought into what your child may realistically make when they’re first out of college. Then, consider how much they will be able to spend on entertainment/luxuries on that salary, with the aim of still saving some money. Chances are that your child’s allowance is for the “extra stuff,” like going to the movies or eating out at restaurants with friends. So you don’t want to get them used to a lifestyle of going to the movies, and dinner out, with friends twice a week when you know they’ll only be able to afford that twice a month right out of college. Give your kids an allowance that will show them how quickly disposable income goes away, when they’re on a tight budget (which they likely will be when they have their first job.)
Do not extend the allowance
There will be times when your kids overdo it on the spending. They might be out of money to do fun stuff, and it’s only the second week of the month. At that time, they’ll really want you to give them more money. They’ll beg and plead and give you those big baby eyes. “But everyone else is going to the movies except me!” they’ll complain. Do not give in and give them more money to have fun with. In real life, that won’t happen. If they’re out of money, they’ll just be out of money. They won’t get a bail out. Having to sit out something fun will teach them the value of budgeting out their money better, and being more selective about how they spend their disposable income.
Make them get a job
There’s not much like working that can teach kids the value of a dollar. Maybe they have some awareness that the Internet bill is $100 a month, or that filling up a tank of gas costs $50, but they won’t fully appreciate those things until they get their first job. Then, they’ll likely learn that they couldn’t even cover the Internet bill with a full day’s paycheck, or that they’d have to work nearly five hours to fill up a tank of gas. When they understand the real hours of work that go into creating the money that keeps the lights on and the refrigerator full, they will think twice before throwing away half a sandwich or leaving a lamp on when they’re out.
Have them work/save for special things
If there’s something really special they want, like to be able to go on a kayaking trip with friends or to go to a concert, don’t just pay for it outright. Understandably, they may not be able to afford the entire thing, but you can require them to pay for part of it. Say, for example, they want to go to an amusement park with friends, and the ticket is $200. Perhaps they have to pay for half. You will pay for half of that ticket, if they can come up with the other half. That might be through that job you already made them get, or through finding gigs like dog walking or washing cars for the neighbors. Show them that going to something like an amusement park is a luxury not to be taken for granted.
If you pay their college rent…
There may come a time when your child is out of the house, but you’re still paying their rent, like when they live in an off-campus apartment during college. As your kids get a bit older, any time you want to cover a cost for them, ask yourself what they’d be able to afford, if they were fresh out of college. So, if your kid had just graduated and had some internship that paid $15 an hour, what should her rent be? She’d barely be taking home $2,000 a month after taxes, so her rent should likely be no more than $700 if she’s going to feed herself and save some money. With that in mind, pay for an apartment for her that’s around $700 a month, and no more. If you pay for her to live in a much nicer place while you’re covering the expense, the places she can actually afford once she’s on her own will be too much of a shock.
Show them the bills
Let your kids take a look at the bills, like the power bill, the grocery bill, and the water bill. If you issued your kid a credit card in her name that she’s allowed to use on limited items, show her that credit card bill at the end of the month. It may come as a shock to her just how much her sandwich there, movie ticket there, t-shirt there, several Boba teas, museum ticket, and dinner with friends added up. If she just uses your card throughout the month, she probably only thinks of the expenses as one-time things. She doesn’t think about how much it all adds up, and that somebody has to pay that $320 at the end of the month. Showing her that bill could get her thinking, “What if it were me who had to pay that bill?” and it might make her more conscious of her spending.
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Look at job listings
You believe in your kid, and you feel confident that one day, they’ll have a very high-paying job and afford an impressive lifestyle. But, you see that one day as being at least five years after college (probably closer to 10), and they see it as the day they leave school. If your kid has some idea of what they’d like to do after school, sit down with them, and look at currently active job listings for beginner positions in that field. Whatever industry it is, they can likely expect to start in an assistant, intern, or apprentice role. Show your kid the real pay offered by those jobs, then have them calculate their cost of living, and how that all works out with the pay they can expect to receive. They may be shocked to find that simply leasing their dream car would cost them their entire paycheck.
Involve them in financial talks
Just like with a second language, the way to get fluent in finances is by hearing it regularly. So talk about money around the kids. If there is something very stressful happening surrounding finances, kids don’t need to hear about that, but let them hear you speak casually about what regular expenses cost. Too many parents shelter their children from this information, which only results in a young adult who has no idea what an apple should cost or what a car wash should cost. It sets them up to make poor financial decisions and even for being financially taken advantage of.
Have them buy the groceries once
Just one time, have your kid try to buy the groceries for the family. This doesn’t mean with their own money. It just means you give them a budget (they can use your money) and see what they’re able to get with that. If you have a family of four, your kid may be surprised to learn that $100 doesn’t go very far. They may have thought $100 could feed you for several weeks! And they’ll come to learn that it can barely cover the food for four people for five days. Now that they know how long it takes to earn $100 through the jobs you’ve been making them do, they can really appreciate how much it costs to have the most basic need of food, covered by you.
When they want designer things…
If your child has a taste for the finer things, first off, don’t buy those for them. You can buy them the $20 jeans, but they’ll have to walk many more dogs if they want the $200 designer ones. Next, help them understand what else they could do with that $200. Show them that $200 could be a car payment, or groceries for half the month, or a good portion of rent. Show them the things that are far more valuable than a pair of jeans, that $200 can buy. This may help them realize how silly it is to spend that kind of money on name-brand items when they’re no different than the generic varieties.
