As they enroll in college, many students find themselves facing a sudden increase in financial decisions. However, the decisions they make now, from applying for student loans to which college they attend, can have a huge impact on their finances. Before your high school-aged student starts applying for college, it’s critical to instill some basic knowledge about personal finance. Teach them about the risks and benefits of loans to how to manage the cost of living in a dorm or first apartment.
1. Make Sure Your Child Understands How to Make a Monthly Budget
You may want to start by going over your own monthly budget with your student. Let your student see how much money you have coming in and what you set aside for specific expenses. Of course, an adult budget may look nothing like the budget your student has while in college.
Work with your student to set a realistic budget for living in the dorms or dealing with a first apartment. Many students, especially those from high-income families, have little idea how money actually works in practice, especially if they have not yet held a job of their own or taken on their own financial responsibilities. If your student will be handling their own bills based on their own income, give your student an idea of what that might look like and what bills they might face. Will you be providing an allowance for your student or helping to pay some of those bills? Set clear limits ahead of time and walk through the budget with your student so they will know what it will look like when they’re actually in college.
2. Discuss the Cost/Benefit Analysis of Student Loans for Personal Finance
If your student will be taking out student loans in order to attend college, make sure you take a close look at what those loans will mean for your child’s financial future. Discuss things like:
- When payments on those loans will start coming due
- What payments your student can anticipate paying each month
- How long it will take to pay off the loan at those approximate payment rates
Make sure you also discuss your student’s anticipated income as they leave college. How much, realistically, will your student be making in the first few years at work? After a decade? Based on those amounts, and assuming that your student lives independently, how long will it take your student to pay off those loans–and what will it mean for their monthly budget in the meantime? Student loan debt has become a serious problem for many people across America. Your child needs to do the cost/benefit analysis upfront to determine whether taking out student loans is really worth it.
3. Evaluate the Value of Scholarships, Grants, and Lower Tuition
If your student will need to take out student loans in order to cover the cost of tuition to a high-cost school, encourage your student to take a look at what other options they might have for paying for the cost of tuition–and how it might benefit them long-term. Help them explore options like scholarships and grants. Take a look at the tuition for lower-cost schools. This might mean a lower financial drain not just while your child is in college, but later in life.
4. Discuss the Difference Between “Wants” and “Needs”
It’s tempting, as a new college student, to embrace the freedom offered by “being on your own” financially as well as in other aspects. Students get to make their own decisions about how to spend their money–but those decisions have consequences that may follow them. Have a discussion with your student upfront about the difference between wants and needs, and how to realistically assign money to each one while budgeting. Make sure your child has a solid understanding of how to manage to spend before they go off to college to reduce the odds that you’ll have to provide an expensive bailout.
Start Teaching Your Student About Personal Finance and College Loans
Sending a student off to college is a big step. Ensuring that they know how to manage their finances before they go is equally critical. Are you looking for a school where you can provide your child with better overall academic preparation for college, increasing the odds that they will get those vital scholarships? Contact us today to learn more.