Preparing Your Kids for Financial Responsibility in College
Although many of us would like to have the resources to provide a fully funded college education for our children, it isn’t often an option. With the cost of tuition on the rise a combination of scholarships, grants and loans are typical to afford completing a degree. However, through proper budgeting and planning, you can help reduce the financial burden involved.
Here are a few things to keep in mind when transitioning your student into the college life and preparing him or her for successful finances.
More often than not, new college students have a hard time understanding how student loans work. This is likely due to their lack of experience with loans in general, especially on such a large scale. This inexperience, combined with the temptation to spend leftover loan money, can lead to excessive purchasing on borrowed money.
Some of the key points to touch on when teaching your kids about loans are: interest rates, unsubsidized vs. subsidized loans and repayment plans. For example, if a student understands the interest rates on his or her loans, they would understand that it would be advantageous to start paying the loans off in small increments over time, instead of waiting until six months after graduation. Studentloans.gov is a great resource to use because it provides detailed information on understanding student loans. Loan officers and financial aid advisors are also excellent resources who can provide you with information to make informed decisions in planning for the future. Simply put, the more you and your kids know about the financial burden associated with a college education, the better off you will be in the long run.
Making a Budget
Once your child understands that college spending (loans included) can often reach levels that exceed the budget, he or she will likely make the conscious decision to monitor their finances. By discussing spending limits and different ways to track expenses with your college student, you can help them develop healthy spending habits. It may save you from a request for cash every week if your student’s cash supply runs out.
One way to design a budget is to categorize expenses based on the items your child will spend most of their money on. Food, laundry, clothing and leisure activities are good categories to begin with. They are also categories that will likely cover most regular spending. By allocating specific amounts to each category, you and your child will then know where the money is going and how to adjust future spending in these categories.
Although there will be steady expenses throughout the year, beginning of the year expenses are often the most costly. Purchasing books, dorm room/apartment accessories and other school supplies can add up quickly. For example, your child may need a laptop or a backpack for school but could live without a flat-screen TV. Budgeting appropriately from the beginning can really help prevent a future cash shortage.
Finding a Job
One of the best ways for a college student to get a handle on their finances is by getting a job. This self-earned income can often help students learn how to manage their money and how to spend within their means. Having a job in college also provides a way for students to begin the process of paying for their education as they go, even if it is in small increments.
One thing to keep in mind is to be sure your child’s job fits in with their class schedule and extracurricular activities. Luckily, there are many jobs on college campuses that are designed to work around student schedules. Learning how to prioritize and balance their academics with their work life will not only help them stay on top of things while in school, but it will also prepare them for life after college.
By being prepared and educated on the things to come, both you and your new college student can make the transition and take the next steps toward a successful future.