Recent statistics show that more college students are dropping out because of the need to pay off credit card debt than because of poor grades.  Students head off the college and are offered a free t-shirt to sign up for a credit card which Junior says he will only use it for emergencies.  All of a sudden an emergency is needing a pizza, a new music CD or a trip at spring break.

Without a steady income or only a part time job the student pays the minimum payment and soon finds himself with $5000, $10000 or in some cases $20000 or more worth of credit card debt.  Many fail to make the minimum payment, incur late fees and sometimes over-the-limit fees. 

These same college students may be bouncing checks and failing to pay other bills on time.  Before turning age 20, these individuals may have ruined their credit for the next two to five years or longer.  They may graduate unable to get a car loan, paying higher insurance premiums and not getting their desired job due to a poor credit score.  It is not just creditors looking at a credit score anymore – insurance agents, landlords and employers are also reviewing this information.

Luckily, under the new credit card law that takes effect in February 2010 it will become significantly harder for those same college students to be offerred credit cards and run up that debt.  According to the new law, credit card companies must verify a student’s ability to pay by looking at income or require a co-signer before issuing a credit card.

So – should you become concerned about your student’s financial education as they are about ready to head off to college?  Absolutely not – you need to be concerned long before that.

Financial education should start with your toddler.  As an adult you need to live within your income means.  A child needs to be taught the same philosophy from the very beginning.  Handing your child money every time he wants a toy, wants to go to the movies, needs gas for his car, and for every other reason sets them up for failure later in life.  How will they learn the difference between wants and needs if they are provided with everything?  How will they learn the skill of saving is they are never required to do it?   Children are not born with the knowledge of how to balance a checkbook or use credit responsibly.

Give an allowance to your child.  Let them learn to live on that.  There is a philosophical argument about whether an allowance should be tied to chores or not; I am not going to discuss that here.

What you need to decide is what your child’s allowance will cover.  Is he required to purchase all toys?  How about entertainment needs – movies, music, sporting equipment, computer and video games, etc?  Gifts for others?  Charitable contributions?  Clothing and sneakers?  School supplies?

Look at all the expenses you are incurring for your child and determine what he must pay for and what you are willing to cover.  Ideally as the child gets older he will become responsible for more and more expenses – thus giving him the tools necessary to survive on his own. 

For example, at seventeen my son is responsible for everything except his shelter costs, meals at home, education costs and medical expenses.  He must cover all his clothing, entertainment, school supplies, restaurant meals and automobile expenses, everything.  He was required to save for his car.  None of that money is provided by us.  If he runs short, he learns to do without or figures out a way to earn more money.

Additionally teach your child about maintaining a budget, using a checkbook and the appropriate ways to use credit cards.  Teach financial terms so they can determine if a loan package is good or bad; how to read a credit report and score; the different types of savings and investment vehicles and how to evaluate them – all the things we need to know to make good financial decisions.

Think about all the financial information you know now that you wish you had known when you were fifteen, eighteen or twenty-five.  This is what you should be teaching your child now so that he knows that information at the appropriate age.  How much better could your child’s life be if he does not have to make all of the same financial mistakes you may have made?

On www.FinancesforEveryday.com you will find a book entitiled “Mom, Can I Have that?”  It gives lots of tips and information on raising a financially responsible child.  You will also find a report entitled “Are you raising a financially irresponsible child?  These can provide you with a starting point.  Google kids and money and you will find hundreds of sources to help you raise financially responsible children.