Paying bills promptly, organizing records are good lessons for kids

Published 2:41 am Wednesday, August 16, 2006

Being organized isn’t a top priority for most teens and young adults, but if your youngsters are letting tattered receipts gather in their wallet or purse and losing track of money and bills, it’s probably time for a quick lesson in fiscal responsibility.

It sounds boring, but teaching a young person to organize their financial affairs can go a long way toward helping them avoid money mishaps later in life. Late fees, bounced checks and bad credit are often the result of simple disorganization.

Having a system for dealing with bills when they arrive is essential. Allowing them to sit unopened on the kitchen counter or in a desk drawer is a good way for them to be forgotten — and that leads to missed payments and late fees.

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Keeping track of how much money you have in the bank is a good idea, too. This may seem like a no-brainer, but many people don’t do it. Explain to your kids how easy it is to bounce checks if you don’t know your balance. This is a costly error to make; banks often charge $35 or more when an account has insufficient funds. If it happens a lot, they may freeze or even close the account. It sounds old-fashioned, but learning to balance a checking account is the best way to avoid these problems and the stress that comes with them.

Another good habit is to review credit card statements regularly; don’t just blindly make payments. Knowing how much they owe will help your kids avoid exceeding their credit limit. It’s also a good way to make sure they’re not being charged for things they didn’t buy. Mistakes happen, and it’s easier to fix them when they are first identified.

Younger consumers are sometimes tempted by “free” offers from credit card companies, for insurance, credit protection and other services. Often these are free only for a brief introductory period and then charges start to accrue. If your kids don’t pay attention or are in a hurry, they might forget to cancel offers that are inappropriate. This can leave them stuck owing money for something they don’t like or want.

Your kids should understand that there are serious consequences to financial disorganization. It can put them in debt — sometimes for a long time — and can make them vulnerable to fraud and identity theft. If they don’t go through their bills and statements on a regular basis, they won’t notice when something is amiss.

The first step to getting organized is establishing a filing system for keeping track of paid and unpaid bills. It doesn’t have to be fancy, but the floor, junk drawer or garbage can are not acceptable places to store financial records! An inexpensive file box or cabinet from an office supply store should do the trick.

Get a bundle of hanging file folders and help your youngster label them appropriately. Each major account with recurring activity should have a file: cell phone, student loan, car loan, gasoline, cable TV, bank account, credit card, pay stubs, taxes, etc. They should also create a file for storing unpaid bills and anything that requires follow-up, such as those free offers.

For most young people, a single credit card is enough. Responsible use of that account will help them build a good credit record, which will be essential as they grow older and their financial life becomes more complex.

Offers for credit cards with very low interest rates are useful when one is planning to purchase something big and pay for it over time, but the majority of offers of credit should be declined. It’s a good idea to keep a record of this, in case your kids find surprises on their credit report later.

The best habit you can instill in your kids is to open bills when they arrive. Throw away any advertising inserts, attach the statement to the payment envelope, make a note of when the bill is due and place it in the unpaid file.

Some people like to use online bill-paying services. This can help technically savvy younger consumers track and organize their accounts. Once a system is set up with their bank, paying bills is simple and can even be scheduled automatically.

Have your youngster create a master list of all their financial obligations, including details like account number, address payments go to, phone number of the company, statement date and due date. It is a good idea to include the average amount due on debts, too. This is also a good place for them to write down how much they’re planning to save each month.

Bill paying should be a regular activity. Coach your children to set aside time for this task, whether it is weekly, biweekly or monthly. If they are organized it won’t take a lot of time.

If you can help your young adult follow this process each month it may rank as one of the greatest lessons you have given them — right up there with potty training!