We all know someone who has just left the nest heading for college. The months and weeks leading up to the departure usually involve lots of raw emotion, a scurry of activity around packing and buying new items, and learning the rules and regulations around move-in day. In fact, there is often so much activity that we often forget to arm our children with advice around their spending habits.
College is the time to engage in new experiences and personal growth. It is the very first time most kids are living away from home and are free to make their own choices. As parents, we tend to enforce the importance of making good academic and social choices, but we also need to include financial choices as part of the discussion.
Living away from home requires kids to figure out when and what to eat, how much to spend on the kegger going on this weekend, or whether they can afford the trip to see the big away football game. College is the perfect time for kids to learn about making sound financial choices. Here are some tips to share with kids you know entering college this year:
Most kids will leave school with debt, they should be aware of exactly what this looks like. Will they be responsible for $250 per month or $1,000 a month student loan repayment? We have made it so easy for kids to gain access to student loans, but we do them a great disservice by not explaining that their decisions have consequences, sometimes decades long consequences. What does an extra semester cost in terms of future repayments? Will my current major and its future job prospects provide enough income for me to pay back the loan AND support myself?
Create a budget
No matter how rudimentary, kids should have a budget. They should know how much they spend and what they are spending it on. This sounds so simple, but remember, most kids haven’t ever been fully responsible for funding up their own bank accounts or being accountable for the way their money is spent. This is a great introduction. Ask them to create a monthly budget for food (outside of the meal plan), clothes, entertainment and an emergency fund. Whether parents are funding their accounts or not, asking them how much they need should begin to hold them more accountable. They can go online and create a budget on mint.com, and if they don’t do it, you can set one up for them. Each month, they can review their spending habits and patterns. Ninety-nine times out of 100, they will blow through their budget, but this is a time for learning and experimenting.
Just say “NO!” Credit is good; but credit can turn bad pretty quickly and may be impossible to crawl out of. Let your kids know that those shiny toys the credit card companies are giving away are not worth their future borrowing capacity. When the time is right, they can do the research to determine which credit card suits them best.
What do your decisions cost?
I don’t mean the tuition payments, here I mean quantifying your choices. At the end of the day, with all the self actualization, maturation and independence that college offers, kids are there to attend class and earn a degree. One 15-week semester at the University of South Carolina runs approximately $12,500 for an in-state resident. What is the cost of skipping a class? $55. That’s a week’s worth of pizza slices. What is the cost of failing a class? $2,500. That’s real money to an 18-year-old (and me!) — the cost of spring break in the Caribbean or home sleeping in their old room that was converted to a media room! These numbers are on the low end of our national average. If your child attends an out of state or private school, these numbers could easily be quadrupled. Run your own numbers and share them with your student.
Just remember, none of this is to scare kids, or cause them anxiety about their college experience, it is simply to help them engage in higher thinking when it comes not only to their field of study, but also their financial decisions.
Stephanie W. Mackara, JD, CDFA, is president and wealth advisor of Charleston Investment Advisors LLC. For more information, email email@example.com