Young minds are programmed to absorb and copy the behaviors around them, which means the sooner you instill proper money management skills, the more prone your kids are to become mature and responsible stewards of their own cash-flow in the future.
“Becoming financially literate early in life is fundamentally important to your financial well-being as an adult,” says Micah Fraim, award-winning CPA and best-selling author.
“I was pinching pennies at five years old, calculating the cost of grocery items per ounce, refusing to buy expensive clothes unless they were on-sale and foregoing scoops of ice cream from the ice cream shop, so I could buy multiple gallons at the grocery store,” Fraim says. “Now as an adult, I still have that same mindset and live well below my means.”
The following kid-approved strategies help you teach the core tenets of being financially savvy; in terms they’ll understand and appreciate. Consider how you can use them to teach your little ones to be smart about money.
Find Opportunities for Lessons
At some point, your child will inevitably deplete their allowance on impulse purchases, rather than holding out for the more expensive item they’ve been asking for. Instead of giving them more money, or buying it for them, use this as an opportunity to demonstrate that money is a finite resource, which must be allocated over an extended period. Once you spend, it’s gone until you can make more.
Have a conversation about what else they could have done with that money, or how much longer they would have needed to save to get the big-ticket item they wanted. Perhaps give an example of when you spent foolishly, or better yet, saved enough money to buy something important, like your house or car.
Demonstrate that Income Is Earned
Chores are an easy way to teach children that money must be earned. This tangible incentive for contributing to your household shows them that have to work for what they want, and even do things they may not want to do—i.e. vacuuming and doing the dishes.
The concept of having to earn your money is a positive outcome of rewarding children financially for completing chores. However, some parents find that this method doesn’t necessarily teach money management, making it a bad way to teach children how to be smart about money. The key to avoiding the latter is the set-up.
Susan Borowski, mother and author for Money Crashers, shares how she set this up with her teenage son:
“As a contributing member of the family, my 13-year-old son is expected to do certain chores around the house for free. He can earn money for tackling larger tasks, many of which he can choose, some of which he cannot; the amount he earns depends on the difficulty of the task or how long it takes. This forces us to discuss money each time he takes on a larger task.”
This shows them that they have control over how much they earn, rather than it being a given.
Secondly, keep chores focused on money management with an app like Chore Monster so children can track what they’ve done and earned. This is an easy way to establish a record-keeping system, for both chores and allowance, seeing increases or decreases in money earned over time.
Establish a Record-Keeping System
When your child is consistently earning allowance or money for chores, it’s important that they’re able to account for what happens with that money. The more emphasis you put on this piece of the earning, the more they’ll see the value of managing their funds. They’ll start to notice wasteful spending habits and identify which pitfalls to avoid during their next allowance payout.
Designate a folder where they can stockpile receipts and a notebook where they can track all purchases. This simple method of financial reporting is an ideal precursor to balancing a checkbook, analyzing bank statements, or creating a monthly budget.
Use Visual Aids to Your Advantage
Although the “piggy bank” is a time-honored childhood favorite, this approach to money management doesn’t allow your child to see the positive outcome of their coin stashing. For a more functional alternative, use a transparent mason jar or clear plastic Tupperware container, both of which gives them an unobstructed view of the progressive financial increase that comes from diligent and habitual saving. This tool makes the abstract concept of saving easy to see and understand.
You can also open a bank account for older children. This gives them a chance to become familiar with bank statements, which act as a visual aid. Each time a new statement comes in, they can sit down and look at how much money was put into the bank account and how that’s changed month-over-month. Many banks now offer online portals, as well, where your children can see progress represented in bar and pie graphs; these may be easier to understand and digest.
Encourage Them to Set a Savings Goal
There’s a sense of accomplishment and empowerment in reaching a goal with no shortcuts taken or assistance received. Channel this mindset when encouraging your child to practice economical behaviors. Next time they express interest in the latest gadget, suggest they purchase it themselves and develop a step-by-step plan together, so they feel equipped for the undertaking. This process of setting aside money with a specific goal in mind reinforces the gratification gained from being smart about money and purchasing the item without any help.
It’s never too early to start teaching your kids about how to be financially savvy. Too many people don’t learn about personal finance until it’s too late — like when they’re buried in student loans — so teaching these skills early on is important for setting your children up for success later in life.
I was raised in a working-class neighborhood near Dallas by my mother, an immigrant from Vietnam. I attended the public schools nearby. We had metal detectors, drug searches using police dogs, a vice principal who was shot by a BB gun at a school assembly, and a teacher who was hospitalized after students put staples in her coffee — and that was just at my middle school.
I avoided the stress of dealing with drugs and gangs by routinely skipping classes. When I was 16, my high school principal told me that my spotty attendance was hurting the school’s funding, so she gave me an ultimatum: I could drop out, or I would be given a large truancy fine. Unable to afford the fine, later that week I became a high school dropout. (More accurately, I was a pushout).
I had to wait a few months until I turned 17 to become eligible to take the GED exam in Texas. Since I had an open schedule, I thought I’d get a full-time job. At an interview with Office Max for a position assembling office chairs, the manager was obviously disappointed that I did not have a high school degree, and I did not get the job. When I realized that I didn’t meet their hiring standards to work in the back of the building screwing armrests into chairs, I decided I had to go to college.
But then came the question of how to pay for college. College costs are sky-high. About 70 percent of students who graduated with a bachelor’s degree in 2012 borrowed money—of these students, the average debt was $29,400. After watching my mother struggle with debt, I was determined to avoid loans as much as possible by making every dollar that went toward college expenses count. And I succeeded: I managed to graduate from the University of North Texas with a degree in sociology in five years with a single loan for $4,000. I now attend a PhD program at the University of Pennsylvania.
Graduating from college with minimal debt isn’t easy. There’s a reason there’s a student debt crisis. But some media accounts would have you believe that students have no choice but to take on large debts — and be haunted by them for decades after they graduate. And in my experience, that’s just not true. I know the challenges for every student are different, but these are the eight ways I made college as affordable as possible.
1) I took as many community college courses as I could
I passed the GED and began considering what college to attend. After my rocky high school career, my family and I weren’t sure how I would fare in college, so we didn’t want to spend a lot of money.I also hadn’t taken the SAT, so I wasn’t even sure if I could apply to universities. So I enrolled at a nearby community college with open admissions and low tuition with the intent of earning my associate’s degree.
While community colleges are less prestigious than four-year schools, they are also a lot cheaper. According to the US Department of Education, the average tuition and required fees at a four-year institution amount to $8,070 for an academic year. At a two-year institution, it is “only” $2,792. By these numbers, if you attend community college for two years instead of a university, you would save an average of about $10,500 in tuition, plus the cost of living at a dormitory that is often mandatory.
And at least in my case, the education I got at community college was in some ways superior to what is experienced at four-year colleges. I took all of my “basic” or “core” classes (math, English, sciences, history, etc.) at community college, where classes usually have between 20 and 40 students. The same class at a university would have had more than 100 students. As a result, community college professors are more likely to learn students’ names, to grade papers and exams themselves, and to develop relationships with students. As a student who struggled initially, I needed that close attention or else I might have slipped through the cracks.
2) When it came time to transfer, I resisted the allure of the “prestigious” college
After two years of community college, I had won a scholarship and I had a solid GPA — around a 3.5. I could’ve applied to my state’s flagship universities (the University of Texas Austin or Texas A&M University) or a private college like Southern Methodist University. After the embarrassment of dropping out of high school, part of me wanted to show people that I was more than a dropout — to be able to brag that I attended a prestigious university like these.
But I only applied to one college — the University of North Texas, which is not even ranked by the US News and World Report. It was a nearby state university with low tuition costs, and it meant I didn’t have to deal with relocating. My family was fine with the decision. Honestly, attending any university impressed my mom.
Would I have received a substantially better education at a more prestigious university? I doubt it. The truth is that university professors are hired because of their research, not their teaching. Attending a more prestigious university would have meant being taught by professors who had better publication records, but that does not necessarily translate into being better teachers. In fact, in some ways you expect the opposite — the more invested professors are in research, the less time they have for mentoring and teaching.
The best argument for attending a prestigious university is name recognition and alumni connections. If you plan to apply to work at a Fortune 500 company, those things matter a lot. But for students like me who just want to enter a middle-class profession, those benefits aren’t very important. While there are other merits to attending prestigious colleges — like having more dedicated students around you, better libraries, etc. — for me, they weren’t tangible enough to justify paying for higher tuition costs.
3) I learned the hard way to take placement exams seriously
After I met with admissions to finalize my application to the community college, I was told that I should take my placement exams because students are unable to register for classes until they take them. I was surprised — I had never heard of placement exams. Still, I felt pressured to take the exams that day.
When I took the math exam, my score was so low that it required me to take two remedial classes. When the administrator was explaining this to me, she asked me if I had used a graphing calculator — I hadn’t, because I assumed it wasn’t allowed! She suggested retaking the exam to see if it would improve my score. The calculator, and the retesting fee, was not cheap. But my score improved, and I “only” had to take one remedial course instead of two.
According to the most recent figures from the Department of Education’s National Center for Educational Statistics report, 20 percent of incoming students take remedial courses. In some states the average is much higher, such as 51 percent of students in New Mexico. These classes cost money but do not count as college credits and are only required if it is determined that the student is “not college ready.”
You can avoid paying for classes that you don’t need by taking the placement exams seriously and researching the format and what tools you are allowed to use.
4) I used ratemyprofessor.com to avoid terrible professors
My first year in college, I had a terrible history professor. I didn’t know what was going to be on the exam or how to prepare for it. This class was beyond difficult — it was poorly taught, it was confusing, and it was frustrating. I vividly remember the professor blaming the students after the class averaged a D on the first two exams.
After that, I was determined to avoid terrible teachers, so I began looking up prospective professors on ratemyprofessor.com. This website allows students to rate a professor by a few different metrics (such as clarity and easiness). The ratings are subjective, and because of that, you should these ratings with a grain of salt, as every professor with a dozen reviews will have some negative ones.
But students can pretty universally agree on what a terrible professor is. So before I registered for a class, I always looked up the instructor on ratemyprofessor.com. If they had overwhelmingly negative reviews, I did not enroll in the course. Each year, this helped me identify a few professors to avoid, which likely saved me from having to withdraw from a poorly taught course or earning a low grade.
5) I found a mentor who cared about my success
The hardest semester of my life was my first semester at a community college. I felt like I didn’t fit in on campus. The students, administrators, and professors intimidated me. So I tried to be invisible — if I could avoid being on campus, I did.
My English professor, Dr. Lisa Roy-Davis, required students to meet with her individually halfway through the semester (an approach that would not be possible at a university with large introductory courses). I was quiet during the meeting, which made it somewhat awkward, but we got to know each other better. At the end of the semester, I told her I was considering withdrawing from college to focus on working.
To my surprise, she encouraged me to keep taking classes and offered to loan me books by authors who wrote about their struggles in college. I began emailing her summaries of what I felt about the books — and questions about what I should read next.
The more I talked to her, the more comfortable I felt on campus. While the feeling of being an outsider never totally vanished, I no longer wanted to be invisible. I became a more engaged student. My grades improved. I began going to office hours of other professors to ask questions, which is how I found other mentors.
A mentor will answer the questions that you are afraid to ask others, instill confidence in you, and help you navigate college. They don’t have a precise monetary value, but they will help you graduate from college.
6) I learned the tricks to applying for financial aid and scholarships
Financial aid was somehow terrifying and liberating for my family at the same time. Because my mother was low-income, I qualified for federal Pell Grants that helped pay for my tuition and books. But applying for those grants was intimidating. The Free Application for Federal Student Aid (FAFSA) is universal — wealthy students applying to private schools use the same application as working-class students applying to community colleges.
That means students like me have to answer questions using financial terms that my family had never heard of. For example, FAFSA asks whether your parents made “Payments to tax-deferred pension and retirement savings plans (paid directly or withheld from earnings), including, but not limited to, amounts reported on the W-2 forms in Boxes 12a through 12d, codes D, E, F, G, H and S.”
Some families might have parents who are familiar enough with finances to know what this question meant — to my mom and me it was like reading a foreign language. We worried that we were going to unintentionally lie on our application, which we feared was a prosecutable offense. Looking back, I know that sounds silly, but it shows how daunting this process was.
I eventually realized that the answer to questions about investments and pensions was “0,” and that FAFSA’s helpline is surprisingly easy to use. I also figured out that I should complete my application before the “priority deadline” to maximize my chance of being awarded a grant.
In addition to financial aid, I learned how to apply for scholarships. In my sophomore year, I was shocked when Dr. Roy-Davis told me I should apply for the Student Leadership Academy, the most prestigious program at my community college. The application required two letters of recommendation, a transcript, and a personal essay. I didn’t think I fit the “leadership” profile — I didn’t have any volunteer experience, my GPA was about a 3.3, and I barely spoke in class. Why apply for something I won’t win?
Despite my protests, Dr. Roy-Davis insisted that I apply. She coached me through how to ask for a letter of recommendation, what the application process is like, and how to write a personal essay.
The biggest thing I learned was that you don’t have to be better than every student — you just have to be better than the other students that apply. And a lot of awards and scholarships don’t have nearly as many applications as you would think. I was accepted into the program and won a $500 scholarship.
The scariest thing about applying for awards or scholarships is feeling like a fraud. This is impostor syndrome, and minorities are more likely to feel it. Essentially, you will underestimate your qualifications and attribute any previous success to luck, causing you to feel inferior to your peers. The only way to deal with it is to push through it — hopefully with the help of mentors.
7) I bought old textbooks (if my teacher allowed it) to save money
Students spend about $1,200 in college textbooks a year, according to the College Board. In fact, nearly two-thirds of students have skipped buying a required textbook for a course because it was too expensive. My first semester, I was shocked by the cost of textbooks. So I started asking students and professors what I could do to save money. Among the suggestions: buying used textbooks online, renting textbooks online, or buying digital versions of the textbook that were cheaper.
But I learned from a professor that the cheapest option is to buy older editions of textbooks, which are often 60 to 90 percent cheaper. The downside is that textbook publishers routinely shuffle chapters around when they release a new edition every few years because it allows them to call it “new” even if it contains very little new content.
In most cases, you can just use the appendix to find the right chapter if the title of the assigned chapter does not match the syllabus. Still, you should email the professor before the class starts and ask if they believe you can use an older version of the textbook. Most professors will understand why you are asking and reply with whether it is a good idea.
Even if you just did this for half of your classes, you would save about $600 a year.
8) I worked throughout college
During college, I attended college as a full-time student and worked part time. I was tempted to do the opposite — work full time and only take a couple of classes a semester — but I decided that it made more sense to try to graduate as soon as possible. Plus, I was lucky to be able to live at home, which allowed me to avoid taking on a lot of living expenses.
My first job was a custodian at a gas station. I worked the swing shift, which meant that in a given week, I’d have two shifts during the day and two shifts that were from 10 pm to 6 am. While staying up all night mopping, sweeping, and restocking merchandise was challenging, I was glad that they overlooked my GED and gave me a chance to gain some work experience. I later worked in retail and at restaurants.
At times, working while taking classes was difficult. But as long as I had a job with a consistent schedule, I found that I could manage it. And my rule was that I wouldn’t try to work full time while being a full-time student, because it would hurt my grades.
I knew that transferring to a university, even one with low tuition, was still going to cost thousands more. I decided to take a semester off to work full time to save up money. My mom was nervous about me taking any time off, but I felt like one semester wasn’t the end of the world. And it allowed me work a bit less once I transferred.
I managed to graduate at the age of 22 (funnily enough, dropping out of high school caused me to start college a year early). While I was proud that I managed to graduate from college without taking out many loans, I didn’t want to walk across the stage on graduation day. The regalia, the speeches, and the handshake all felt like worthless fluff that would take hours to take part in.
But when I told my brother that I didn’t want to go, he told me that I had to. I was going to be the first in my household to graduate from college — and it meant a lot to them. He was right. My mom cried tears of happiness, and it is one of my favorite memories.
A critic might point out that I saved money to the detriment of my education: I took more community college classes than university courses, I based where to attend not on prestige but on low tuition, and I used old textbooks. But today, I am a doctoral student at the Annenberg School for Communication at the University of Pennsylvania, which is ranked near the top of its field. In addition to a full scholarship, I also receive a living stipend and have won fellowships from the National Science Foundation and Google. Last summer, I interned with the Pew Research Center.
And no one has ever cared where I got my bachelor’s degree or questioned the quality of my undergraduate education.
This college student deserves an “F” in accounting after she blew through a $90,000 college fund on expensive clothes and a trip to Europe and now has no way to pay for her senior year, a predicament she blames on her parents.
The 22-year-old woman detailed her financial woes on an Atlanta FM-radio show whose wisecracking hosts derided her spendthrift ways and whose listeners belittled on Twitter as the millennial who was giving millennials a bad name. Kim, who did not mention her last name or her school, told “The Bert Show” that it was all her parents fault for not showing her how to manage her money.
“Maybe they should have taught me how to budget a little better, a little more carefully,” she told the show the other day. “They never sat me down and had a real serious talk about it. They said, ‘Here’s your college fund, it’s for classes only.’”
Dr. Keith Ablow, a psychiatrist and member of the Fox News Medical A-Team,told “Fox & Friends” Sunday that Kim’s parents do share part of the blame.
“Not necessarily for failing to teach their daughter financial regimens and accounting, but because they didn’t teach her character,” he said.
Kim said her grandparents set up the college fund for her years ago. She contacted “The Bert Show” after the school had just mailed her the tuition bill for her senior year, according to Yahoo’s financial news website. She explained that she was short about $20,000 for her final two semesters.
“I just wasn’t very good with my budget,” she said. “I also used it to budget for school clothes, stuff like that. My college break money…Maybe I should have not done that.”
Kim said she also used her college tuition money on a European vacation. “The Europe thing I thought was part of my education and that’s how I tried to justify that,” she said, according to Yahoo!
In another call, the young woman said her parents told her there was nothing they could do for her because they didn’t have any money. She accused her father of being a “little bit of a jerk about it” after she told him she was broke.
“They’re not being honest with me, saying they don’t have it because my father has worked for like a million years and they have a retirement account,” Kim said.
She said her parents suggested she take out a loan with the credit union. “And I’m like, ‘How am I supposed to do that?’” she said.
The next day Kim told the show she went down to the credit union after all to apply for a loan. She said the loan officer told her she would need her parents as co-signers because she didn’t work and didn’t have collateral.
Kim told the show her parents wouldn’t co-sign unless she got a part-time job.
“I don’t know. Maybe I’ll tell my parents I’ll be a stripper if they don’t co-sign,” the woman said.
In a fourth call to the station, Kim said her situation had improved. Her loan had been approved and she was looking for a job, as much as that pained her.
She was also still blaming her parents.
“I know they’re trying to teach me a lesson blah, blah, blah and character building, but like I hope they realize that this can have such a negative effect on my grades and as a person,” Kim said on the air.
For-profit colleges may have found a loophole to evade the Obama administration’s crackdown on the industry: Transform into nonprofit institutions.
Four college chains, which account for a total of about 50 campuses nationwide, converted to nonprofit entities over the last several years, but still act in many ways like profit-seeking enterprises, a new report suggests.
The schools engage in behaviors that aren’t typical of nonprofits, such as paying lease payments on property to the former owners of the for-profit company and allowing the former owners to have a larger say in the governing of the new nonprofit instead of leaving it up to a group of independent trustees not out for financial gain, according to a review of government documents by Robert Shireman, a senior fellow at the Century Foundation, a progressive think tank based in New York that focuses on education and economic issues.
“I didn’t expect to see such a consistent pattern,” said Shireman, who has also served as an undersecretary in the Department of Education.
These choices raise questions as to whether the schools should be allowed the tax-exempt status that comes with being a nonprofit and whether the Internal Revenue Service is looking closely enough at the schools that request it, the report notes. They also raise concerns that the colleges are looking to evade scrutiny as regulators set their sights on the for-profit college industry.
Once one of the largest for-profit college chains in the country, Corinthian Colleges collapsed earlier this year, after the Department of Education delayed dispersing the school’s financial aid funding amid accusations the company was luring students into taking on loans with inflated career and job placement rates. Federal and state law-enforcement officials have also filed suits against other for-profit chains.
As part of this push to better regulate for-profit colleges, the Obama administration recently strengthened a rule that requires career colleges to prove they’re preparing students for “gainful employment,” or a job in their field, to receive financial aid funding. For-profit colleges are also required to receive no more than 90% of their funding from federal coffers—an attempt to prevent companies from relying entirely on taxpayer dollars for their profits. Nonprofits are exempt from this regulation, and typically they have little trouble finding funding from a variety of sources, Shireman said.“But because for-profits basically prey on people who are eligible for the max financial aid—low income adults—they bump up against that rule pretty frequently,” Shireman said. He’s concerned that the four schools named in the report—Herzing University, Remington Colleges, Everglades University and Center for Excellence in Higher Education—converted their formerly for-profit campuses to nonprofits to avoid having to comply with those rules.
The report calls into question the Salt Lake City-based Center for Excellence in Higher Education’s petition to the IRS to be considered a tax-exempt educational institution, instead of a tax-exempt charity after the organization acquired a suite of for-profit college campuses in 2012. But Eric Juhlin, Chief Executive of the Center for Excellence in Higher Education, disputed the report.
“He’s trying to say that this was a scam and it was a sham” and that the Carl B. Barney, the owner of the for-profit campuses sold them to Center for Excellence “to continue to prosper and benefit from the colleges” while using the nonprofit status to avoid regulations targeting for-profit schools, Juhlin said. “In our case that couldn’t be further from the truth. It had absolutely nothing to do with regulatory avoidance, tax avoidance or trying to play some game with respect to the organizational structure.” Rather, he said Barney decided to sell the campuses to the nonprofit institution as part of “an estate planning decision” that would allow the schools to continue “in perpetuity” even in his absence.
Kelli Lane, a spokesperson for Everglades University, also disputed the report’s findings in a statement, noting that the school began its transition to nonprofit status in 1998 “well before” the current regulatory environment.
“An independent Board of Trustees continues to ensure students are receiving a quality and accountable education,” she said.
Renee Herzing, the president of Wisconsin-based Herzing University, which began the process of changing its status in 2009, said the school is in “solid compliance” with federal and state laws. “Herzing University agrees that becoming nonprofit is a serious commitment to the public good, which is why we decided to pursue that status for our 50-year-old, family-founded institution,” she wrote.
(A representative from Heathrow, Florida-based Remington Colleges, which was approved as a nonprofit in 2010, didn’t immediately respond to a request for comment from MarketWatch.)
Shireman said he’s concerned the trend may go beyond these four chains of schools, noting that he’s looked into a couple of other possible cases. “There could well be more,” he said.
The Department of Education is keeping an eye on this phenomenon and as a result hasn’t yet approved requests from other for-profit schools to turn into nonprofit entities, Dorie Nolt, a Department spokeswoman, wrote in a statement. In the meantime, those schools have to abide by the restrictions placed on for-profit colleges, she added. “The Department shares the concern that some for-profit school owners may adopt the trappings of nonprofit status to avoid certain federal regulations while continuing to make money from the schools,” she wrote.