As you prepare to send your daughters off to college maybe for the first time or she’s returning, I feel one of the best gifts a parent can give is financial advice to assist her as she navigates life independent of you. Here are four tips to financially prepare your daughter for life on her own.
Step One: Help her understand how to read her credit report.
Pull your daughter’s credit report from all three credit bureaus, Equifax, Experian and Transunion. I strongly suggest not waiting until college to review it. Actually, you should obtain a copy once a year to ensure no one has stolen your child’s identity. Then sit down with your child to teach her how to read the report. Here are the basics. A credit report is organized into four sections: identifying information, credit history, public records, and inquiries.
Identifying information will show her name, current and past address(es), social security number, date of birth, telephone numbers, driver license numbers, employer and when she gets married, her partner’s name.
Credit history will show:
- names of the creditors with the corresponding account numbers,
- type of account such as installment or revolving,
- total amount of the loan, high credit limit or highest balance on the card,
- how much you still owe,
- fixed monthly payments or minimum monthly amount,
- status of the account (open, inactive, closed, paid, etc.),
- recent payment history and whether you paid as agreed each month
Additional comments can include whether or not the account is closed by consumer, internal collection, charged-off or in default.
The final section lists all inquiries. This reports everyone who has asked to see your credit report including you. There are two types of inquiries, hard and soft ones. When you complete and submit a credit application that is considered a hard inquiry. Prescreening for credit offers by new and current companies or potential employers are soft inquiries.
Here is a resource to order your daughter’s credit report, Annualcreditreport.com. However, I want to reiterate obtaining the report from all three credit bureaus and it being done annually. Use this opportunity to discuss how imperative it is for her to properly manage her credit. This will help her when she’s ready to get her ideal job after college, rent her first apartment, and buy her first car or house. Her credit is the gateway to a solid financial future.
Step two: Help her understand the components of managing money.
Have her use a tool like mint.com to track her monthly income and expenses, explaining the importance of properly managing her cash flow. Educate her on NOT overspending and deciphering between wants and needs. Show her the impact of making unwise money decisions. By doing this, it will help her when she gets into the workforce. Financial stress is a major factor in people’s lives. A 2018 PwC study shows that among 1,600 full-time employees, 53% report being stressed about their finances. Across all generations — Millennials, Gen X, and Baby Boomers — financial matters were the top cause of stress. This would be a great time to talk about student loans and weighing the cost benefits of specific educational choices and its impact on her future earnings and livelihood. So, the earlier she learns how to properly handle her money, the better off she will be in life.
Step three: Encourage her to start saving for the future NOW.
When your daughter obtains her first job, there are two things to do. The first is get her to open a checking and savings account with a local credit union. I suggest a credit union because they generally provide better customer service because their focus is not on creating the biggest profits but on creating the best customer service and support possible. Their members not shareholders come first. Also because of the lower fees charged, credit unions are able to offer higher interest rates on deposits and lower rates on loans.
Step four: Get your daughters educated on investing in stocks.
According to a recent article by Glamour magazine, Deep, Dark Money Secrets From 1,000 Women, “Women Aren’t Investing Enough!” After you have established your child’s banking relationship, get her to open a ROTH IRA and an investment account so she can start investing for her future by purchasing stock in companies where she shops. This is a good way to expose her to buying stocks early. Also, you can gift her an account with stockpile.com using sparkgift.com. Having her embrace investing early, puts her on a path to building wealth and having choices with how she lives her life. It gives her options.
Tags: College Planning, Mom Life, Moms Who Blog, Money Matters, Motherhood, mothers and daughters, Parenthood, Personal Finance