Here is an article from Alan Kennedy’s blog:
As your kids prepare to leave home you want to give them all you can to help them be successful. What you don’t want is to have them saddled with debt from student loans, new car payments and credit card debt. Teaching them responsible money management strategies and talking with them about the cold hard facts of finances can help them learn early and avoid some costly mistakes. You can help them have a solid financial foundation by focusing on a few of the principles below.
Credit Cards Need to be Handled Responsibly
Kids need to understand how credit cards work and see how the interest mounts up with each purchase and just how small the “minimum payment” impact really is. A credit card sponsored spending spree may put a smile on their face for a while and help them look great at the homecoming dance, but inevitably the bill comes due and reality sets in.
Action: Use these calclulators to help explain how much that $250 pair of jeans will actually cost when purchased with a credit card and making minimum payments. Compare that to what they would have paid if they used cash instead, and encourage them to use cash or a debit card to eliminate steep interest payments and overspending.
The More Student Loans You Take Out, the More You Have to Pay Back
Kids also need to understand that student loans need to be paid off, which sounds easy when they are applying for them because at the end of the education they expect a job. If that job doesn’t happen, the loans are still there and those payments still need to be made.
Action: Try to limit the amount of student loans your child needs by considering the cost of the school they want to attend. Consider whether the cost of the school is realistic, or if it will leave them in a mountain of debt. Help them apply for all the scholarships and grants for which they are eligible. Talk to them about attending a local school, which would reduce the cost of housing, or a less expensive school, which would be less of a financial strain. Talk to them about the impact the income from a part time job would have on their total loan amount. Go to this school loan calculator to see how long it will take to pay off a school loan and what it will really cost.
Buying a House Costs More than the Price of the House
Children need to understand what a mortgage looks like and the reality of interest and down payment and insurance, etc. The monthly payments mom and dad make are not the price of the house divided by the number of months of the loan. There is much more to it, and they need to understand this so they can begin preparing to become homeowners.
Action: Help them realize what interest is and how that is paid back, and how a large down payment can help you get a lower mortgage with lower interest rates. Go to this mortgage calculator and print an amortization schedule and talk to them about the structure of a mortgage. Talk to them about starting to save for that crucial down payment.
There are many other things you can do to help your children prepare for their financial success, but by focusing on one or more of these three principles, they should be off to a good start.