For some parents, this is a very exciting time of the year, particularly, for those who are sending their children off to college. Going to college is a massive milestone for not only the child, but also the parents. When a child goes away to school, there are many issues parents and children need to deal with, including finances. I cannot stress enough how important it is to have a money-related conversation with your child. A college-age student’s mistakes with money can cause problems that can last decades.
Some college students are lucky in the fact that their parents are going to pay for everything; however, for the great majority of college students, they will need to contribute to their expenses. Your child must understand exactly what expenses they’re responsible for (and have a plan to pay for them). It is also important that college students understand what a budget is and the difference between needs, wants and savings. Needs are necessary expenses you will incur to pay for your day-to-day living. These typically include food, housing, utilities, medical expenses, and insurance. Wants include expenses that increase the quality of your life such as going to restaurants, joining a gym, or even donating to a charity that you care about. Savings is money you put away for purchases later in life. Savings can be used for such things as buying a home or even saving for retirement. Students need to learn that it’s just not how much money you make, but rather, how you handle your money, which will lead to financial success. In talking to your kids about budgeting, remind them that over 75% of Americans live paycheck to paycheck, which is not a good way to live.
Lastly, it is important to talk to your students about debt management. When they go away to school, they are going to be offered all sorts of ways to borrow money, whether it’s through credit cards or personal loans. Students must understand that debt problems today can impact the rest of their lives; particularly, when it comes to credit cards, as they are easy to use. Unfortunately, using credit cards comes with a huge cost. It’s important that students realize what it means to pay 18 or 20 percent interest on a credit card balance. In fact, I would recommend that you get your student to agree that they will not apply for any debt until they discuss it with you first.
When I moved to East Lansing to attend MSU, there weren’t as many things to spend money on; that is not the case today. There are a lot more avenues to shop than ever before, which means there are more opportunities to get yourself into trouble. That is why it’s important to talk to your kids about the proper use of debt and how to use credit cards responsibly. If a student runs into debt problems and is late in paying their bills, it will have a negative impact on their credit score, which could cause them to pay much higher interest rates for any borrowing in the future. It is important to highlight to the student that credit scores are used to determine the interest rate you pay for such things as a home mortgage or a car loan. Good credit scores get good rates when it comes to borrowing; bad credit scores mean much higher interest rates to pay.
To ensure your student has a successful college experience, it is critical, as uncomfortable as it may be, to talk about finances. Acting as a good steward of personal finances will pay dividends in the future. To all those who are going to college this fall, good luck and enjoy your college experience. It’s a great time of your life.