By the time a child is ready to move out of the house, either to college or to an apartment across town, it's important that she be prepared with the skills she will need. There are a number of basic areas that parents should address with their kids, especially the following:
- Renting an apartment
- Roommate awareness
- Household safety
Understanding financial matters will be important to your child, no matter what her immediate plans. Make sure that by the end of high school she has a firm grasp of basic budgeting and savings plans. She should also know how to use and keep track of checks and handle loans for college or a car.
Thankfully, there are now many tools that can help to organize personal finances. You might start by teaching your child how to use a financial software program like Quicken, Microsoft Money, or TurboTax. Many of these programs have easy-to-use tutorials that can walk you and your child through the process, and many kids are adept at learning to use new computer software. Consider giving your child some of your own financial data to practice with.
You should also teach your child about credit. It will be easier for your child to get a credit card while still under your care, because credit companies believe they can count on parents to back up their children in an emergency. Plus, you can supervise your child's first forays into buying on credit. Make sure that she knows the importance of paying her bills on time, and understands the possible consequences of late or missed payments. Having a credit card will help your child start building a credit record, which she will need to get loans and more credit later in life.
If your child has college loans, make sure that she knows her repayment options. If she has more than one loan, it may be in her best interest to consolidate them. This can be done through the government or through private consolidation companies. Consolidation reduces several loans to one monthly payment to one lender, which lowers the monthly payment by extending the life of the loan. However, consolidation can also significantly increase overall interest expenditure. Check out the government's resources for more information. Additionally, your child may be able to get a lower interest rate on her loans simply by setting up automatic payments from her bank account. Lastly, while making more than the minimum loan payment each month will reduce the overall amount of interest your child pays, it's not always her best choice -- she might be better off investing the extra money. If the return rate on her investment is higher than the interest rate on her loan, she'll make more money from the investment than she would save by repaying the loan early.
You'll also want to teach your child about paying taxes, including how to fill out a W-4 form. Print out the forms that she needs and talk her through income, deductions, credits, and other tax terms. The IRS website has an information section for students. Again, software can make this process much easier, and it's likely that your child will qualify for using the IRS's free filing software when she first pays taxes on her own.