Money 101: School Your College-Bound Child
The SATs scores are in, the fat envelope has arrived, and soon your high-school senior will become a college freshman. You've done your best to provide your child with the common sense and confidence necessary to face the heavy dose of reality that comes with landing on a college campus. But have you had "the talk"? The money talk, that is.
While there likely have been many discussions regarding allowances, the value of a hard-earned buck, and filling up the piggy bank for a rainy day, college requires a level of financial responsibility that will be new terrain for many incoming college freshmen.
The College Board, New York, estimates that the average in-state public college tuition for the 2013-14 academic year is $22,826, while a private school college is on average $44,750. That's a hefty sum for one year of education, and it doesn't factor in the necessary extras: books, lab fees, food, room and board, and other incidentals. It's these extras that often catch students off-guard.
As a parent, you may have thought it was your responsibility to help your college-bound child secure tuition—either by providing him or her money, encouraging good academic habits for scholarships, or by co-signing student loans. However, in the big picture of college finances, tuition may be the least of the worries. With a challenging job market and slow economy, now isn't the time for your freshman to be saddled with unnecessary debt.
Deter disaster with some dialogue. Sophia Bera, a certified financial planner and founder of Gen Y Planning of Crystal, Minn., suggests that parents have regular discussions with their children about money so that the topic isn't taboo. "If money issues aren't dealt with or discussed, this only leads to bigger and bigger money issues," says Bera.
Begin with a budget: "What bills, fees, and expenses will you have?"
If your student has been relying on you for cash, don't expect him or her to know much about bills. Sit down and plan a budget together. Visit the website of the college's financial aid office, which is where things such as tuition costs are listed. Other items to consider:
Nontuition fees often catch students off-guard.
Role assignment: "Who pays for what?"
With a better understanding of all the costs involved, your graduating senior needs to understand where the money comes from to pay for it all. If your student is taking out student loans, for instance, a good budget can help him or her not take out more than is needed simply because it's available. Regardless of the financial aid source, the most important thing is to help your child understand the breakdown of the money available during a set time. For example, if the travel budget is $1,000 a semester, calculate how many trips home that means. Does it also need to include things like gas money while on campus, bus passes for getting around, or monthly parking fees?
Sit down with your student and plan a budget together.
Jodi Okun, founder of College Financial Aid Advisors of Seal Beach, Calif., lists "financial literacy" as a priority topic in the money conversation. "Students need to begin to think about what is involved financially," says Okun, who believes that finances and budgeting are part of going to college and becoming an adult.
Seeing red: "What will you do if you run low on money?"
Even the most responsible of kids will run into money struggles once in a while: a class had more fees than expected, a student loan didn't arrive to the bursar's office in time, or a wallet was lost. Whatever it is, how will you, as a parent, advise your child? Here are two schools of thought:
Good debt, bad debt: "Are you going to get a credit card?"
A 2013 study conducted by Ohio State University shows that college-age children will take on an average of $5,689 more credit card debt than their parents and grandparents did at the same age. They also will hold on to this debt longer—well into their 70s.
Credit cards are not all bad, though. "If [a student] is super responsible with money, then using a credit card and paying it in full each month is a great way to build credit," says Bera. "However, if having a credit card will make [him or her] spend more money than earned, it might be a better plan to avoid them altogether."
When discussing credit cards with your child, stress these important tips: Use wisely and don't charge more than you can pay off when the monthly bill comes. Check out credit card options at your credit union. As not-for-profit institutions, credit unions generally offer better rates on credit cards—up to two percentage points lower than the average bank card rate.
The day you drop your child off at campus will be here before you know it. Make sure the tears you have when you drive away are happy ones, not ones filled with worry for your son or daughter's financial security. Have the money talk now, and many times—even once the college career has commenced. Listen, advise, and help your child find on-campus resources, a campus or hometown credit union for example, to help plant the seeds of independence. You helped them with their first baby steps; it's really no different when it comes to money.
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