4 Ways You Can Prepare Your Kids to Handle Their Finances

Teaching your child about finances at an early age will help them learn how to handle their finances as adults. While your child is living at home, there are four ways to help prepare them to handle their finances: 

• Establish a line of credit 
• Clean up any credit mistakes before college 
• Educate your child about mortgages 
• Save for college 

These four areas can give your child a head start in life and prepare them for the real world when they have an income, bills, and financial goals. 

4 Ways You Can Prepare Your Kids to Handle Their Finances

Establish a Line of Credit.

As a parent, there are three easy ways to help your child establish a line of credit: 

• Add your child to a loan or lease 
• Add your child as an authorized user
• Teach your child good credit habits 

Establishing a line of credit for your child at a young age is a great way to start your child off on a financially positive onset. Adding your child to a lease or loan or even as an authorized user will give them a credit history.

As a parent, your job is to ensure that you are making on-time payments to any line your child is added to. Teach your child these good habits so that they will be a financially responsible adult when it comes to their credit score. 

Without your help, your child will enter adulthood with no credit history and no score. Starting early will help them build a credit history, so when they are ready to get their own credit card or take out a loan, they will have a good score for the best interest rates. 

Clean up any credit mistakes before college.

Having a perfect credit score is hard, but it’s easy to have a good or excellent score over a poor score. The difference between poor and good can mean saving thousands in interest payments. So it pays for your child to have the best credit score that they can. 

Check your child’s credit score to ensure they were not victims of identity theft or have any unknown accounts on their record. If your child’s credit score is low and there are errors, getting sets of fraudulent claims removed will help improve their score.

Before they enter college, anything on their credit record that can be removed will help them secure any job, utilities, or credit they may need.

If your child’s score is low because they were on your account and missed a payment, you may have to work on your credit to fix theirs.

Any accounts you are late in or have a high balance on should very quickly bring up a credit score if taken care of. Work on making on-time payments and pay off large sums as you can to help your child’s score. 

Educate your child about mortgages.

It may seem early to talk to your high school child about mortgages, but explaining the process to them at a young age can allow them to potentially invest in real estate at any age.

In addition, teaching your child the entire process of securing a mortgage for their first home will allow them to avoid many common mistakes that can happen to first-time home buyers. 

Applying for a mortgage takes more time than applying for a credit card. Before you even look for a home, you need to be pre-approved for a mortgage. A mortgage broker will give you a certain amount you can borrow for a home.

They will assess this number with bank statements from all savings and checking accounts as well as your full credit report. 

If your child understands all of the information needed, they will keep better records and a good credit score to secure enough of a mortgage for their dream home. Without the best documentation, your child could be approved for a smaller mortgage. 

Save for college.

The cost of college is at a record high. For many students, taking out student loans is the only way that they can pay for college. Student loans can be crippling for a young adult entering the workforce. As a parent, you can help your child secure funds for higher education without taking any further debt like:

• Scholarships/Grants 
• 529 Savings Plan
• Part-Time Jobs 

One of the best places to avoid student loans is to find scholarships or grants to cover the partial cost of your child’s education. However, scholarships may not cover the full amount, so someone will have to save money for your child to go to college without taking on a student loan.

As a parent, you can start a 529 savings plan. This is a specialized savings account specifically used for education costs for your child. Alongside your savings, if your student is able to work a part-time job in the summer and save that money for college, they can also contribute to their education. 

Prepare Your Kids to Handle Their Finances

Helping your child with their finances before they go to college will give them a financial head start.

Certain aspects of personal finance improve with time, like a credit score. Different areas of personal finance include good financial habits like saving and investing.

Photo by Karolina Grabowska