Budgeting lessons for students
Budgeting is not the most exciting topic, but it is one that high school and college students need to think about. Before kids enter high school, a basic understanding of saving and spending can set them on a course for success.>
Students as young as elementary school can be introduced to the basic concept of budgeting by developing simple money habits. They can learn about making economic choices and budgeting by depositing their cash into one of three jars: spending, sharing and savings.
For older students, a disciplined approach to money becomes an essential life skill that can prevent impulse spending and foster great money management habits. But it can be easier said than done!
Here are a few topics to discuss with your older children.
Having purchase strategy (a.k.a. a Spending Plan)
When considering costly purchases, such as electronics, car, or a big vacation, focus on research—not just word-of-mouth and advice from friends. Students can start by comparing costs and understanding price differences between products or vendors to determine who offers the best value for the dollars spent.
One key is to help high school and college students be realistic about items in their budget. No doubt, allocations have to be made for items such as transportation, books, clothes, food and other day-to-day spending requirements. Some students may even need to borrow for some or all of these expenses.
Other spending, like spring break trips or the latest electronic gadget, should not require borrowing. For students with savings and some means, value shopping for these items may be appropriate.
Adding new expense categories to a student budget
Like their parents, today’s student budgets start with the basics—food, clothing, spending money—but may also include increasingly costly technology, such as smartphones and laptop computers.
These upgrades are best funded with a part-time job or gifts, rather than student loans. When introducing new purchases like these into a pre-existing budget, students can start to look ahead creatively, and understand the value of money and the time spent to earn it. How could extra money be earned to afford the upgrade? Is it possible to reduce expenses elsewhere? How long would it take to save the money towards a purchase? All these questions can be answered by first simply creating a budget and establishing some baseline parameters.
Tracking spending = better spending
Whether making purchases by swiping a card, tapping a cellphone or using a new app, technology has made it easier than ever to facilitate everyday purchases. But it has also made it easier than ever to overspend.
To help rein in incidental expenses, students should monitor their spending. Setting alerts on their phones for purchases is one way to remind students to take a closer look at their banking statements to track purchases over time. Students may make different choices about small expenses when they identify and project them over a year.
A pertinent way to teach this is through a 529 plan. my529, Utah’s official 529 educational savings plan, has been helping families invest for higher education for 25 years. Show the value of saving even small amounts while children are young. Earnings on investments in a my529 account grow tax-deferred, and withdrawals are free from federal and Utah state income taxes when used for qualified higher education expenses. Plus, saving is better than borrowing. Visit my529.org to learn more.
Budgeting can be as simple as allocating resources to save for a future purchase such as a new TV, or as complicated as balancing current spending to pay down student loans and save for a home or retirement. Parents can empower students from elementary school through college with common sense approaches to budgeting, rooted in basic choices of saving, spending and sharing. By understanding how to budget, they can take control of their personal finances and successfully achieve their financial goals.
Author: Invite Education, LLC