In part 1 of this series, we talked about how tricky it can be to navigate the costs of higher education today with young adults. Today we’ll list some concrete suggestions that can help families work through the “money issue” while students are in school.
Before selecting a school: Talk about what you can afford and what your child will need to cover.
Many of us aren’t comfortable talking about our incomes with our children, but now is a time to disclose. Your child needs to know how much you saved, what assets you have, and how much you can afford to or want to spend. Fill out the FAFSA forms together, and when offers come in, discuss the reality of each one and what it will mean to your student.
Discuss who pays for what
Sit down with your student and write out all the expenses he or she will likely encounter. Consider all factors: tuition, room and board (if using campus housing), rent and food (if living and eating off campus), books, car, gas, insurance, health insurance, going out, clothes, and incidentals. (This list will be long!) Discuss who will be responsible for paying for what.
Talk about where the money is coming from
Who is looking into scholarships and grants and what are your expectations there? (There are many for children of service members.) Do you expect your child to get a job? How many hours? What about summers: do you expect him or her to get a paying job, or will unpaid internships be a possibility? How much money is he or she expected to contribute overall? Are you willing to take on any loans, or is he or she expected to be the primary loan-bearer? If school is nearby, can your child live at home rent-free?
Research suggest that students may work harder and take school more seriously when they have a little “skin in the game”—that is, when they work to help pay for school. Students who have a completely free ride may tend to party more and study less. However, experts also caution that working too many hours can make it hard to do well and finish a degree.
Help them get their first checking account and their first credit card
Yes, they still need a checkbook, though they will probably prefer to do their banking online. With that in mind, though they may appear sophisticated, don’t forget to go over the importance of secure passwords and how to avoid phishing. Remind them never to share financial information or a debit card with anyone.
New laws prevent young people under 21 from opening their own credit cards, though they can be an authorized user on your account or use a prepaid credit card. The authorized user approach may be a good set of credit card “training wheels,” since parents can check the balance, but they also need to learn to handle it on their own.
Help your child understand what a student loan truly means
At this age, the concept of making loan payments for years may be vague and theoretical. Lay out in detail what they can probably expect to be paid at a first job, what expenses might be, and what a monthly loan payment could look like. Make sure they know that there are only a few circumstances in which you can defer or be excused from paying loans, and that serious consequences exist for those who default. Have your student read accounts from young adults living with loans of various sizes.
Teach your child how to budget
Hopefully, parents started early with this key financial life lesson, but it’s not too late. Talk to children about the basics of budgeting. How much money do they have coming in (from whatever source) every month? How much do they have to spend on fixed costs like rent and cell phone bill? What’s left over? When does the money come in from various sources, and how will they ensure they have enough?
Encourage your child to roughly track expenses. He or she isn’t likely to want do this using pen and paper and receipts, but fun and easy-to-use budgeting apps make it simple and allow him or her to categorize spending and find out where the money goes.
Teach your child about credit scores
Your child is probably just starting out with a credit score, a number that will follow them forever. Make sure they understand that employers, landlords, credit card companies, banks, and all kinds of other people will have access to and will use this number, and that it can take a long time to fix mistakes. Have your child visit MyFICO or this basic page from Indiana University to learn more.
If you are still largely or partly supporting your college student, you have every right to set spending limits and to make your expectations clear about the amount he or she can spend on incidentals. There are various ways to work this out, from prepaid credit cards to new prepaid ID card systems on campus to the simple route of periodically depositing set amounts into your child’s checking account, which you monitor. Don’t obsessively monitor spending, since he or she won’t learn much about how to control temptation if you call every day to scold. But at the end of the month, if the money’s gone, it’s gone.
Talk about your child’s financial future
It can be easy to get stuck on worrying about the “here and now” of college costs, but don’t forget the bigger financial picture. Talk to students about the long term: making and reaching financial goals. One of the most important things a young adult needs to learn is to start saving early. Thanks to the power of compound interest, putting money away starting young can make a huge difference to his or her future, even if it’s just a small amount. Students should start with a small emergency fund as soon as they’re on their own and graduate to putting money into savings every month, even while paying off loans.
College is a major life milestone for parents and students both, and it can be intimidating. However, higher education is the key to so many amazing opportunities. With help, parents can help their students gain the understanding they need to graduate from college with a firm financial footing.
Chatz, J. (2014). How to talk money before they go off to college. Retrieved from http://fortune.com/2014/08/25/how-to-talk-money-before-they-go-off-to-college/
Daugherty, G. (2016). How to Keep Your College Kid Out of Money Trouble. Retrieved from http://time.com/money/4406466/how-to-keep-your-college-kid-out-of-money-trouble/
Gilkay, G. (2016). Time to talk about money with your college student. Retrieved from https://www.fisc-cccs.org/time-to-talk-about-money-with-your-college-student/
Grabmeier, G. (2015). 70 percent of college students stressed about finances. Retrieved from https://news.osu.edu/news/2015/07/01/financial-wellness/
Padilla-Walker, L. M., Nelson, L. J., Carroll, J. S. (2012). Affording emerging adulthood: parental financial assistance of their college-aged children. Journal of Adult Development, 19, 50-58. doi: 10.1007/s10804-011-9134-y
360 Degrees of Financial Literacy. (n.d.) Teaching Your College-Age Child About Money. Retrieved from http://www.360financialliteracy.org/Topics/Family-Financial-Planning/How-to-Talk-to-Your-Children-About-Money/Teaching-your-college-age-child-about-money