They say that money makes the world go around, but sometimes it can make the world stop dead in its tracks. When you become burdened by debt, every action seems like it is governed by the amount of money you have available. If you get behind on payments, it starts to turn into a downward spiral as late fees and interest payments add to the amount that is owed.
On the other hand, the intelligent use of debt to pay for something that will provide a future benefit can be a positive influence in life. While many parents worry about having “the talk” with their teenage and adult children, many also forget to have the equally important “money talk.” You want your child to understand how to use money, learn about setting a budget and sticking to it, and use debt where appropriate. This is not something that can be taught in one sitting; it is a lifetime of accumulated money skills. Here are some lessons you will want to impart to your child along the way:
• High School/Thinking About College: Have a frank discussion with your high school student about college dreams and college reality. Indicate exactly how much you are going to be able to support your student financially through college, and talk about their role in the process. Research college options and costs, and projected earning potential for various degrees. This will help all of you better evaluate which college your student should attend.
• High School Grad/Entering College: At this point, you should know if student loans will be necessary to help pay for college expenses. Utilize federal student loans first, and then talk with your student about private student loan options. Check out private loan lenders like Discover Student Loans, which offers zero fees and has a reward program for good grades. Make it very clear who will be responsible for repaying loans upon graduation, and show your child how to live within a designated budget while attending college.
• College Grad/Entering Life: This is where the “rubber meets the road” when it comes to the financial lessons you have taught your child. For the most part, there is a grace period of about six months before student loan payments must start. Use this time wisely to understand repayment, deferment, forbearance and consolidation options. Set up a repayment plan together, make sure your graduate understands the repercussions of not paying, and then help him or her find a job with sufficient remuneration to allow for student loan payments.
If you have done your job properly, you should have a reasonable adult who understands how to use money and debt properly to achieve certain goals in life. Money lessons well learned can then be applied to adult decisions about marriage, car purchases, and home mortgages. So, don’t be afraid. Find some quiet time with your high school student, take a deep breath, and just say, “Honey, we need to talk.”