As the parent of a high school senior, you have a justifiable right to be proud of what you have accomplished together. Your child has grown and matured, gotten accepted into a great college, and even managed to find a way not to put too much strain on the family budget. You both worked your way through filing the FAFSA to meet those financial aid eligibility requirements, and your student found a few scholarships to help pay for a few incidentals.
It might seem like you have all earned the right to just sit back, relax and look forward to graduation, but deep down inside you know you really do have a few more conversations you must have with your student before untying the apron knots. You have probably covered the good judgment and good choices topics already, but have you seriously talked to your student about setting a college budget? Even the most fiscally responsible young adult is about to be faced with a whole new world of money options.
Without your steady hand to guide the way, some potentially damaging financial choices can be made. That’s why it is so important to have one, or two, intense conversations about handling money wisely. Here are some topics you’ll want to make sure you cover:
• What is a budget? For many teens, staying on a “budget” means limiting the amount of times they go to mom or dad for money! Most don’t realize that there is a way to plan income and expenses, and to find ways to save money for specific purposes. Have a real conversation with your student about where money comes from, and how to earn more when necessary. Then really look at monthly expenses and make distinctions between “needs” and “wants.” Help your child understand how long it takes to earn money, so he or she can make wiser choices about how quickly to spend it.
• Where does the money go? Review common expenses and help your child realize just how quickly they build up. Try to take everything into consideration including laundry, gas and auto insurance, cell phone and data plans, and even a weekly “splurge” on pizza. It might be quite a shock for your student to see how much money is spent on the small “necessities” of life.
• How is money saved? It is first important to teach the long game of saving money to meet a goal. Show your student the difference between the immediate gratification of a credit card purchase with long-term interest rates and the delayed gratification of saving money and making a purchase without using credit. This will be a crucial lesson for college and life after college.
• What is easy credit? Someone who has never used credit or managed their own money might not realize how quickly interest adds up. Make some minor calculations on small budget items that will help demonstrate how quickly someone gets into a money hole. A $100 purchase on credit might not seem like a big event, especially if the credit card company only wants a minimum $10 payment every month. But look closely at the nearly 20% interest rate, and you might see that it could add almost $20 per year to the cost of the purchase. If you buy something else, and continue making minimum payments, there might come a time when those payments only cover interest and don’t make a dent in the principle balance.
• What is easy money? The one big deceiver in the college money game is the availability of student loans. They kind of fly under the radar as many students max out their loans, and then forget about the payments. It seems like a great way of getting easy money, until after graduation when the student is faced with hundreds of dollars a month in repayment on a new job salary. Make very certain your student understands the long-term consequences of borrowing money and deferring payments.
It can be uncomfortable to have the money talk, but isn’t that a lot better than seeing your child struggle financially?