Your kids are moving out of the house to strike out on their own, and you’re understandably apprehensive about the situation for a number of reasons. We all know that some are more financially independent than others, but no matter how responsible they have been so far, there are a few things they need to understand about managing money—whether it’s theirs or yours.
While the temporary non-accruing interest can be appealing for students looking for some extra spending cash, insist that they borrow only what they absolutely need.
Maxing out non-interest bearing student loans may be an easy way to access additional funds immediately, but getting into this habit can mean your student might be paying back $100,000 or more in loans over a 20 year period once the interest starts to kick in.
Tell your student not to worry about keeping up with the Jones’. They’re probably going to meet a lot of people their age who have a lot more money than they do, and that’s fine. That’s how the world works.
There’s a time and place for being flashy and making excessive purchases, and that time comes when you’ve established yourself as a successful professional who makes a consistent income—not when you’re in debt and unemployed.
The credit card situation becomes more complicated when you throw in the unemployment factor. Some students may not be able to hold jobs during college due to the nature of their studies (such as those who study law or aspire to get into a top medical program).
You’ll need to discuss the reality of whether it’s acceptable to get into debt now with the intention of paying off debt once a high-paying career has been established.
Tuition. Rent. Utilities. Cable. Insurance. And of course potential student loans and credit card bills. You’ll want to be on the same page with your student about who is paying for what before they leave.
Maybe you’ll pay for tuition and rent, but they have to earn their own spending money. Or maybe you’ll give them a set monthly allowance for them to use as necessary and require them to come up with supplemental funds.
Prioritizing and Budgeting
How students choose to spend their money in college can affect the way they view money for the rest of their lives. When shopping, advise your student to ask themselves whether they actually need an item. If they think they need it, ask them to consider whether they could live without it.
Although they probably wouldn’t want to, asking these simple questions when shopping—even if it’s just for groceries—can be beneficial.
Another spending trend among college students—and many Americans, for that matter—is to overindulge within the few days of getting paid. This can lead to a lack of funds for the rest of the month, which can be uncomfortable to say the least. Introduce them to the concept of a no-spend weekend to help their limited funds last longer.
Saving and Investing
Nobody likes living paycheck to paycheck, and getting into this habit is especially easy during the college years when so many students are more concerned about having a good time than planning for the future.
Even though saving during such a financially restricting time might seem out of the question for your student, remind them that even saving a little is better than nothing at all.
Encourage them to get a summer job and then help them invest some of the money in low-risk options that allow them to access their money should they need it.