Preparing for college involves more than choosing a school, filling out applications, and shopping for dorm supplies. It also means helping teenagers understand how money will shape their college experience.
In preparation for their student’s journey to college, many parents fail to have money conversations with their teenage children. In an effort to shelter their children from the financial realities involved with affording to attend college, many parents handle the financial affairs of college-bound teens. However, not discussing the cost of attendance and financial aid with your college-bound teen can leave them feeling in the dark as to how to handle the many financial decisions that they will be expected to make while in college.
These are conversations you will want to have with your college-bound teen to prepare them for college finances, to reduce confusion, to prevent debt, and to learn money management skills to last them a lifetime!
Start With The Full Cost Of College
The price displayed on a college website rarely tells the whole story. Tuition may be the largest expense, but it is only one part of the overall cost.
A more detailed look at the actual costs for attending a college can also be helpful. While tuition is probably the largest cost, it is by no means the only cost. Students and their families should go through a list of anticipated expenses for things like housing, meal plans, textbooks, transportation, technology, fees for school, and other personal spending money. Even items that cost a little each time, like doing laundry, joining a club, paying for parking, and taking trips home during school breaks, can add up before you know it.
It is also important to compare your estimate of the annual cost of the student’s college attendance with the amount of money that you have already saved, that which has been awarded to the student by means of scholarships and grants, that which the student can earn by means of work-study, and that which the student will receive by means of federal and state financial aid. There may still be a “funding gap” after you have taken all of these sources of financial aid into consideration, but you will have a better sense of whether or not you are able to afford a given college when you have compared your estimate of cost with your estimate of financial aid.
Many schools, however, charge much more than just tuition. When students decide on a college, they should have an idea of how much other expenses will be and how they will pay for them. And, in some cases, the biggest factor in a student’s decision will be cost.
Explain How College Funding Works
Financial aid packages can be confusing because grants, scholarships, work-study opportunities, and loans are often presented together. It is important to understand which forms of aid do not need to be repaid and which will become a financial obligation after graduation.
Families should generally prioritize scholarships, grants, personal savings, and federal student aid before considering additional borrowing. If there is still a funding gap, researching private student loans can help families compare available options based on interest rates, fees, repayment terms, whether a cosigner is required, and the total cost of repayment.
Borrowing should always be approached carefully. Taking on more debt than necessary can create financial pressure as graduates begin their careers. Before accepting any loan, students and their families should fully understand the amount being borrowed, when repayment begins, estimated monthly payments, available deferment options, and how those payments may fit within the student’s expected post-graduation income.
Additionally, parents and students can use this conversation to discuss the potential pitfalls of borrowing too much. They should understand the potential debt, payment start date, and how the student’s expected first-year salary will impact repayment.
Agree On A Realistic Spending Budget
A teenager going off to college can easily spend lots of money in the first few months of school for things like food, entertainment, going out with friends, traveling to and from home, clothing, etc. All of this can be covered by a monthly spending budget that the teenager and his or her parents agree upon before the student leaves for college. This budget can be based on the student’s funds from work, from savings, from an allowance, or from the parents covering part of the expenses and the student covering the rest.
Parents and teenagers must discuss just how much money the family can spend each month and which expenses the student will pay for. Should the family purchase the student’s groceries and supply him or her with a car for transportation? Should the student’s use of after-school part-time jobs be for the student’s entertainment? What happens when the student’s budget is spent for the month, and there are still expenses to be paid for? These are discussions and plans that must take place before the student leaves for college.
A Guide To Explaining Your Use Of Credit Cards To Your Teenager
College students are often introduced to credit cards in college before they fully understand the interest, minimum payments, and late fees that are associated with their use. So, it is very important for parents to clearly explain to their college student that using credit cards for college expenses is not extra money that they have.
A college student’s use of a credit card can help them establish a credit record, but by using the card to spend money that they do not have, they can soon find themselves drowning in interest for what seemed to be inexpensive purchases of college merchandise. Only charging what you can afford to pay for by the end of the month is the only wise way to use a credit card.
Keep The Conversation Going
One financial discussion before college is not enough. Expenses, aid packages, and personal circumstances can change from one semester to the next.
More financial discussions about money management will be better than waiting for one problem to magnify into a larger financial headache. Financial management is a process, and there are things to learn throughout the process. By having discussions with students periodically, parents can work with their student to analyze their budgets and make financial decisions that best fit the students’ financial situation and goals. By students managing their parents’ money, students will become more independent financially and be better able to manage their finances in the long run.
Many say that sending their teenager off to college is the parents’ farewell to their ‘baby.’ And, because college is often a student’s first major step toward independence, teaching your teen how to manage their finances while in college is among the most valuable things you can do for them before you bid them adieu.
Thanks for stopping by!
Magda
xoxo
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