The youngest of my three kids is about to head off to college. There are many skills that he will need beyond getting to class, doing his school work and making new friends. He will need to be “capable” in a variety of areas, including being a good roommate, doing laundry and managing his finances.

When I think about teaching my kids about money and helping them achieve financial literacy, the oft quoted saying comes to mind: “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”

Financial literacy is important because it is about independence and responsibility, thriving and balance. I suspect you want that for your kids, and I am certain that you are already doing so much to help your kids thrive and be independent and responsible.

But money can be a hard topic; we have been taught not to talk about it. Talking about money, though, can demystify it, make it less scary and empower you and your kids to feel more comfortable.  

Daniel Hebert of Jump$tart, a coalition promoting financial literacy, encourages us to talk about money, “The more you teach your kids before they go off on their own, the better prepared they are.” In doing so you are helping them be responsible, independent and capable. And, as former Federal Reserve Chairman, Alan Greenspan, points out, helping your kids achieve basic financial literacy, helps them “avoid poor financial decisions that can take years to overcome.”

You may be thinking that financial literacy implies that you have wealth. But understanding money and how to use it is important at every income level. And, although it is great to start early with your kids, it is never too late to start.

Financial Literacy 101

Here are the three areas that have helped my kids be responsible, independent and capable around money (in college and before):

• Understanding and discussing money values
• Budgeting and keeping track (including being able to get a job while in school)
• Creating excellent credit.

Let’s look at each of those areas.

Understanding and discussing money values

My husband and I come from different money backgrounds, and some of our ideas of what money is for and how to use it don’t line up. But, we had to come to a compromise and articulate what our key shared values about how to handle money are so we could give a unified message to our kids. We continually ask and answer the questions:

• What are our needs? What are our wants?
• What is money for, what are our spending priorities?
• What do we value such that we want to pay for it with available funds?
• What is our vision for our family financially, now, in twenty years and beyond?

Asking, discussing and answering these questions are helpful for us. But what was helpful in discussing money values with our kids was sharing our own money stories with them. Stories about how we grew up, what our parents said about money and how they treated it.

We give examples of both good and bad money decisions we have made as kids, teens and adults—and how we learned from them (or repeated them until we learned). We share stories about how we learned to make good decisions and also how we were lucky to be in the right place at the right time to get a great job or get a fabulous bargain. Using a little humor can really help! The financial journalist Carl Richards, otherwise known as the Sketch Guy, has a short and sweet article that also might help you think about talking about your money values.

Author Joline Godfrey writes in Raising Financially Fit Kids, “Getting values aligned among family members will go a long way toward ending family dramas related to money.” She points out that it is unlikely that everyone in the family will have the same values, but coming up with a shared vision can still happen through discussion and give and take.

Set aside some time to have an open discussion about money values, be ready to listen as well as set out your own ideas. There is no “right” answer. What you value is up to you. Try to make the conversation calm and take it a bit at a time. Think about it this way, managing money is as normal as brushing your teeth; this may help make the conversation go more smoothly.

As money conversations can be difficult if you are rushed, another fabulous way to share your money values, lessons, stories (including mistakes) with your departing college bound child is through a Money Legacy Letter. You can find a template for Legacy Letters here. Ron Lieber, a financial journalist for the New York Times, says about these letters: “It’s long enough to tell some tales to bolster your advice, and if it’s written with enough soul, there’s a good chance the recipient will keep it for a long time. Plus, it’s a literal conversation piece, since the good letters will inspire more curiosity about how the writers oversee their own financial affairs.”

If your children are young, you have time, but note that once they are over about five years old, they are savvy enough to know what you value by your actions. Talking early makes the stakes lower and you can do a little at a time, allowing for lots of practice, mistakes and opportunities to learn from those mistakes.

Budgeting and keeping track

In our family we believe that allowance is a great way to teach money management and foster independence and responsibility. We started with classic allowance at age five. By the time our kids hit nine we moved to the three jars format of allowance (Spend/Save/Give, described by Lieber in The Opposite of Spoiled).

The summer before my eldest started high school we sat down and brainstormed all of the things that both we and he paid for, both his Needs and Wants.

Needs included school books and lunch, transportation costs to and from school, clothes, and a computer that was required. Our family also considers savings and giving Needs.

Wants included going to the movies, video games, Starbucks, sports equipment, clothing that was more of a luxury item (for example basketball shoes not worn for playing that sport).

By adding up each category, we were able to create a yearly budget. Then we discussed what we would contribute and what he would have to fund (through summer jobs or extra work during the school year, birthday or holiday gifts). We used a simple Excel spreadsheet and divided the yearly budget into quarters. We then deposited a quarter of our share into a bank account he opened at our local bank.

At the end of each quarter he showed us how he did (actual expenditures versus budget). This meant he had to keep track of what he spent. He did this by using his debit card (tied to his account) and keeping track of cash expenditures. That way he could just look at his online bank statement and his cash log to see what he spent and what he spent it on.  After a couple of quarters we sat down and discussed how things were going and if the budget needed adjusting. We kept this up all the way through college, but the percentage of what we provided and what he was responsible for shifted each year so that he slowly learned how to take on more money responsibility.

How you deal with money is highly personal. Some people pay for whatever their children need and want, some do not. Your formula depends in part on available funds but also your philosophy about money. I can tell you what my research says works and what our family does, but ultimately you have to decide what you will be paying for and what your child will be paying for. The important thing is to decide, set a budget, track and reassess as necessary (Did you allocate too much to clothes and too little for after sports practice snacks? We did, and we rebalanced after two quarters).  And of course, stick to the budget.

I want to mention jobs in college. If your son or daughter will be working at college, one of the best things that my daughter did was to have a nice looking resume with two references done before she headed off to college. This was her idea and her younger brother is copying it. As a result she was able to get the pick of jobs and worked as a receptionist at the college’s art museum. This job put her in a beautiful, quiet atmosphere where she was able to do her reading for class when things were quiet (which was most of the time).

Creating excellent credit.

Whether or not you help your college kid get a credit card is totally up to you. When our oldest left for college across the country, we gave him a credit card on our account for true emergencies (which we spelled out and discussed). He did not have his own credit card as we had heard horror stories about unpaid bills and interest charges adding up (more on that in a minute). Instead he had his own debit card tied to his own checking/savings account. This all worked well until he graduated and got a job in Boston. When he went to rent an apartment he had no credit history, so the landlord would not put the lease in his name. Fortunately his roommate did have good credit and they were able to rent the apartment.

We learned from that experience and our two younger kids (19 and 23)  have low limit credit cards, which they pay off completely each month. Their limits increase as they gain experience and continue their excellent track record. If you prefer, you can cosign the credit card application, which allows you to monitor the account to make sure the bills are being paid on time. That is up to you and your kid.

In  5 Money Lessons Teens Should Learn Before They Go to College, the author points out the dangers of credit cards. “While the government has tightened rules regarding the marketing of credit cards on college campuses, 56 percent of college students carry a card, according to a survey by Sallie Mae of 800 students between ages 18 and 24. More than a third of those with a card don’t pay off their balance each month either. These students, who may graduate with student loans as well as credit card debt, may discover they are already financially behind before they even start their career.”

Whatever you decide, it is well worth having a discussion about credit cards and the major differences between debit cards and credit cards as well as the importance of building a good credit profile by paying the balance in full each month. In this article the author suggests: “The next time you pay with plastic in your child’s presence, point out that it’s borrowed money and that compounding works against you when you carry a balance. Later, show her your bill, specifically the box illustrating how long it will take to pay off and how much it will cost if you fork over only the minimum. Make sure she understands, too, that you’re “graded” on your use of credit; regularly paying late, for example, could result in a higher rate on a car loan.”

Showing and explaining how credit cards work, and making it very clear that there is nothing free about credit cards, can save a lot of pain later.

Start Where You Are

As I said, it is never too late to start talking about money. Take it one step at a time. Figure out what you value, what you want to communicate and keep in mind what your child is ready for.

If your child is about to go off to college and you are short on time, I suggest you at least discuss what you consider to be “Needs” and what you consider to be “Wants” and how much of each he or she will be responsible for. Then come up with a budget and a way to track. You can use Google sheets or Excel or a tracker like Mint, whatever you and your son or daughter prefer.

Again every household is different and no two situations or solutions are the same, but everyone should know their money values and understand how budgets and credit work.

Knowing your values, especially when it comes to money, is a key step in creating financial independence and loving your life. You can include those values in a legacy letter your kids can refer to every time they approach their finances.

Maybe you have already had all of these discussions and your kid has a budget. If so, I would love to hear what worked, what didn’t and advice you have for others. Please add your thoughts into comments below.