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4 Ways to Help Set Your Kids Up for Future Financial Success

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Plenty of parents steer their children toward a college education, encouraging them to get good grades and keeping their fingers crossed that scholarship opportunities will arise. Unfortunately, most students today need loans to fund their college expenses. Student loan debt continues to climb and is now the second highest category of consumer debt. With student borrowers facing over $1.3 trillion in debt, parents are worried about their children’s financial futures, and rightly so.

Preparing Your Children for Their Financial Future

According to a study by the National Endowment for Financial Education, only 24 percent of Millennials exhibit basic financial literacy, yet 69 percent gave themselves a high assessment of their money smarts. There must be a way to address this disconnect, educating and preparing our children to navigate the rocky monetary terrain ahead.

The good news is that Millennials are engaged in their finances, with over 88 percent having bank accounts and 51 percent already saving for retirement. Unfortunately, the majority (53 percent) feel they have too much debt — most of that from student loans.

Of course, the last members of the Millennial generation are already graduating from college and entering the workforce. But younger generations are still in a good position to learn the ropes before jumping into the world of finance. Parents can — and should — take steps now to increase their children’s financial literacy and prepare them for when they head out on their own. Here are just a few simple steps that can parents can take to get their kids on the path to financial literacy.

1. Teach the power of a good credit score (and how to get one).

Dan Wesley, founder and editor in chief of, explains that your three-digit credit score is based on a complex compilation of your financial history and “follows you throughout your life.”

The credit score determines your ability to get a car loan, home mortgage, and a rewards credit card. “Even if you get the loan or card you want, with a bad score it will likely come with sky-high interest rate that will potentially cost you thousands of extra dollars.”

By explaining to your children that their financial history follows them, and the importance of paying their bills on time, you can help them obtain and maintain a good credit score. Also, let them know not to max out a credit card and that they should refrain from applying for new cards too frequently.

2. Set them up with a risk-free credit card.

Because the length of your credit history accounts for 15 percent of your credit score, it’s important to encourage your kids to get a credit card early to begin establishing that history. Many banks offer student cards that have limits based on the amount of money in one’s savings account, so your children will be incapable of spending more than they have. These cards still offer cash back rewards and allow them to make purchases with a card and then pay it off each month.

“It’s important to understand that making the minimum payment on a credit card each month is one of the main reasons many people have financial struggles,” says Paul Bernadini, the head of corporate communications and analyst relations at online lending platform Kabbage. “People usually think paying only $20 a month for $1,000 in debt isn’t much, making them more likely to keep charging — and soon struggle to meet the minimum payments.”

ValuePenguin has put together a list of the best first credit cards for you to explore — with options from Discover, Bank of America, and more. It’s important to note that if your children are between the ages of 18 and 21, you will need to cosign on the application.

3. Don’t hide financial discussions.

Many parents avoid discussions about money because they are insecure about their own income or financial situation. However, it’s best to begin these discussions when your children are young and you can begin to foster an awareness of what items actually cost.

By talking to your children about money, you can expose them to your financial values and goals. Jayne Pearl, an author on financial parenting, told CNN that it’s important to discuss wants versus needs and the resulting tradeoffs. “You can’t have everything. You can have this or you have that, and these are opportunities to teach your kids how to do that by giving them tradeoffs … around things that get bought for them.”

4. Set savings goals as a family.

Once you’re open with your children about your finances, it’s important that you let them sit in on — and even contribute to — any discussions on the family budget. Financial expert Dave Ramsey reminds you that you are the adults. “Only mom and dad make the final decisions. If you are paying off debt or saving for the future, let the kids join in as you celebrate reaching milestones along the way.”

Ramsey also suggests that as you set goals, you remind your children that financial decisions can require sacrifice. “That might mean skipping a vacation in order to cash-flow a car. But they’ll catch on — especially if they understand these sacrifices will affect their future as well.”

It’s never too early to start teaching our youth the value of financial stability and security. Setting family goals and discussing spending habits is an effective way to establish your values and beliefs. Working with college-aged children to obtain a credit card and create a good credit score will benefit them for years to come.

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