You’ve done your best to teach your child financial responsibility when they were young. However, before they leave for college, there are a few last-minute lessons you can teach them. College is a tough adjustment for many young people, financially speaking, and these key lessons may be enough to help keep them from digging themselves into a financial hole that could take years to dig out.
Lesson #1: How to Manage Money
Whether your child’s college expenses are fully funded by scholarships and savings or he/she is planning to work his/her way through, college may be the first time your child will need to deal with money on a regular basis. There are books to buy, meals and groceries to buy, and plenty of opportunities for overspending along the way. Make sure your child gets a basic course in managing money before heading out the door. Teach teens how to create a budget, how to prepare for major expenses, and, of course, how not to rely on Mom and Dad for money.
Lesson #2: How to Handle Credit
Many children are eligible to take out loans or apply for credit cards around the time they start college. While building credit is important for future financial transactions, college may not be the best time to try to juggle it. If your child is responsibly ready to begin building credit, use one credit card for one purpose, such as filling up the car with gas. Teach them to be sure there is enough money in their checking account at the end of the billing period to cover the expenses placed on the credit card. And, teach them how to set up automatic payments so that their credit is not damaged by late/missed payments. This will keep the credit card manageable while building credit in his/her name. However, if your child has not yet demonstrated financial responsibility, encourage him/her to avoid using credit cards as much as possible–or even to put off having one until after college. Overuse of credit now could lead to paying off extreme credit card debt for years in the future–a costly mistake.
Lesson #3: The Impact of Student Loans
Many millennials are quickly discovering that student loans can hinder their financial future if they aren’t planned for responsibly. These days, there’s no guarantee that graduating from college with a shiny degree will result in an equally impressive job to go along with it–and unfortunately, student loans start coming due just a short time after graduation. Make sure your child fully understands the impact that student loans will have on future finances, including how long it could take to pay off those loans. Encourage your child to research starting salaries for their desired future career path and subtract the future student loan payments to get a realistic view of potential income after college. It could even be worth having a serious conversation with your child about whether or not that high-dollar first choice school is worth the extra expense or if a year or two at a community college could help prepare them for future financial success.
Lesson #4: How to Search for Scholarships
Too many kids have absolutely no idea where to find scholarship help–and it is out there! Whether your child is ready for freshman year or halfway through, there are scholarships available that will help offset the cost of college, books, and even living expenses. Do some serious research into how to find scholarships, then help your child set a schedule for applying for them. Remind your child that small scholarships–which many people overlook, which could mean less competition for them–can add up fast. That $250 may not seem like much against the cost of tuition, but it can make a big difference in the cost of books and other supplies.
Lesson #5: How to Reduce Debt by Working
Unless your family has the means to support your child through his/her college years, working during college is a great way for your child to reduce the debt burden after graduation. Even if scholarships or student loans are paying the costs, working now can help offset living expenses and reduce the amounts of student loans so that your child will have greater financial freedom later in life.
The college years can have a huge impact on children’s financial future, especially if they end up heavily in debt early in their education. By teaching these five critical money lessons before your children head to college, you can give them a step up after graduation instead of constantly worrying about paying off those loans.