Published October 10, 2019 • 3 Min Read
This article originally appeared on Inspired Investor on September 18, 2019.
Thanks to summer jobs, grants, student loans, RESP withdrawals and/or scholarships, kids may be responsible for managing more money than they ever have before. To help prevent costly mistakes, it can’t hurt to pass along a few words of financial wisdom.
Use Credit Cards Wisely
A credit card can be a convenient tool for making purchases and having a monthly record of all those transactions. It can also be a good way to build up a credit history. However, it’s not a bottomless pit of free money. Remind your kids that they are borrowing money that has to be paid back — and if the balance can’t be paid off each month, interest payments increase the cost of everything they’ve purchased.
To bring your point home, an online credit card payment calculator can show them how long it would take to pay off a $1,000 balance by making only the minimum payments each month. (Chances are they’ll be bowled over to learn it could take 10 years and cost them an extra $800, assuming an annual interest rate of 18 per cent.)
Avoid Overspending Due to FOMO
The fear of missing out (FOMO) is a real phenomenon that even seasoned adults fall prey to. We see our peers going out for a meal or drinks, travelling or buying the latest tech gadget and suddenly we feel like we need to be part of that club. Social media often exacerbates the problem, since a network of “peers” can be in the hundreds or thousands of friends and followers. But what if you can’t afford those things?
Talk to your kids about ways they can build social relationships and enjoy student life without spending beyond their means. For example, many campus activities are free or subsidized. If they’re on a meal plan, they could eat on campus first and just order an appetizer or dessert when out with friends. Chances are they aren’t the only one trying to stick to a budget, so others in the group will likely be grateful and follow suit.
Protect Personal Information
Growing up in the digital age, your kids are probably already savvy about keeping their device and application passwords private. But the stakes are even higher now if they’ll be banking and making payments online, applying for part-time jobs using their Social Insurance Number (SIN), and possibly living with roommates for the first time. Make sure they know how important it is to check bank statements frequently, to ensure they’re using secure sites for credit-card purchases, and to update their computer’s antivirus and security software as necessary. They should also know to physically protect sensitive documents in a locked drawer or filing cabinet, and that their SIN should be given out only if absolutely necessary.
Ask for Help
Finally, you want your kids to know that if they do end up in financial straits, they shouldn’t be afraid to come to you. We all make mistakes; it’s one of the many ways we learn, after all. But, the sooner you know about a problem, the sooner you can help them fix it and, hopefully, avoid the same fate in the future.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
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