Being aware of money

Money is a subject that is difficult for many families. Husbands and wives may not agree about their family's financial strategies, so talking to their kids about money opens up an uncomfortable subject. Helping your children learn about money may be something you would like to leave "until they are old enough to understand." But if you wait until your children leave home for college or a job, you will put them at a big disadvantage. Living on their own means they will be taking on new responsibilities managing their expenses along with experiencing a new school or work-related pressures, all at once.

If you are hoping that they will learn about money management without your help, at school perhaps, that is unlikely. A class in personal finance used to be a graduation requirement for Oregon students - teenagers were taught about banking, saving, credit, and budgeting. Since the requirement was eliminated several years ago, only a few high schools still have this offering. Some of this content is covered during junior or senior year economics courses, but the practical, day-to-day lessons of dollars and cents may not be included.

So the responsibility to develop a good foundation in money management rests squarely on your shoulders. Your children's education about money should include the concepts of earning, spending, saving, borrowing, and sharing. But before you begin, you may want to consider these questions:

By learning about money, children are also given the opportunity to formulate their own values about income, life style, and work. This can be a powerful motivator in their education and career planning. As they identify their life style choices, they can connect career options that can meet their future needs. They will see that income is related to level of education, and they may make better choices about their education plans.

Money during college and beyond

Starting college or a first job means new responsibilities for your children. One of the biggest is taking care of their money. At this point of their lives, they may have developed the skills and conscientiousness required for responsible financial management. If not, you will want to help them create a budget and implement some good financial strategies.

How do I help my child set up a budget plan?

Help your children by going over this simple budget building process and making sure they set up ways to manage this budget regularly.

Creating a budget involves two basic ideas: how much money is coming in and how much is going out - income and expenses. The goal is to make sure that income doesn't exceed expenses.

Start by breaking out the year into manageable units. If your children are going to school, they may use months or terms (semester or quarter); if they are going to work, they will want to consider breaking the year into months. Since most bills are due on a monthly basis, reviewing one's budget at the beginning of each month will keep them on top of it.

Your children need to figure out how much money they can count on each month. For students, start by adding up all sources of income for the year: student loans, scholarships, work-study funds, parental contributions, wages from a part-time job, and savings they plan to spend this year on school expenses. Divide that amount by the number of months they'll be in school. If they plan to use that money to support themselves during the summer as well, they will need to divide their total income by 12. The result is their monthly income, the amount of money they can spend each month.

For your children who are working, their income may come from a single paycheck. If they are on commission, have only part-time work, rely on tips, or have any other variations in their income, they may want to determine a low and high monthly amount and budget their expenses according to the lower figure.

When figuring out income, keep in mind when they receive their money. Some loans or scholarships may not be available right away. Don't figure that money into a monthly income until the cash is in hand.

The next step is to add up monthly expenses. This is typically harder than figuring out income because they will be estimating expenses for many items.

Start with the biggest expenses and the ones that they know for certain. For students, this will be tuition and housing costs (rent or dorm fees). If you are developing a montly budget, divide any annual or term costs by the number of months in your budget to spread the cost evenly. Also add in the amount they expect to pay for books and school supplies. Costs vary, but most students spend about $300 per term for books. Divide by the number of months per semester to determine your monthly book/supply budget.

For your working children, the expenses they will know may be rent or house payments, car payments, car insurance, health insurance, telephone and cable costs - those items that have monthly costs.

They will also have to add in all of the miscellaneous living costs they will have: food, utilities, toiletries, car-related costs (gas and parking), laundry, travel expenses (to go home for holidays), and entertainment. Until they develop a record of expenses in these categories, the best estimate will have to do. One of the biggest pitfalls in budgeting for everyone is what's included in this "other" category. When developing a spending plan, your children may want to identify what are essentials and what are luxuries and whether they can or cannot afford the luxuries. Here's just a partial list of things people spend "change" on, without thinking about how it adds up: gum, candy, books, magazines, newspapers, tickets for movies or sporting events, CD's, DVD's, cosmetics, hobby items, gifts, and greeting cards.

Income versus expenses - a balanced budget
Once they have figured income and estimated expenses, they need to see if they will have enough money to cover expenses. If not, they need to review the expenses to see how they can either cut corners or increase their income through a part-time job or other means.

Keeping on top of how much they have to spend each month will help them make additional spending decisions, for example, whether they want to have a car with them at school, how often they will eat out, whether or not they will go to the movies.

Regular review
Keeping on top of their budget plan is just as important as making the budget in the first place. That means comparing actual expenses and income to budget, preferably each month. If the budget was not correct, they need to make adjustments to bring it back into balance.

Here are some other tips to help them manage their budgets:

What if expenses are exceeding income?

If your children are having trouble adjusting their budgets so their total monthly expenses don't exceed their net monthly income, here are some tips on how they can cut back within each category of monthly expenses:

And here are some additional money management mistakes to encourage your children to avoid: