If your child is off to college, it might be the first time that he or she is going to be in charge of their finances. So, while deciding what to pack and buying textbooks and dorm décor, don’t forget something very important: a discussion about finances.
If you haven’t already talked about it, this is the right time to prepare your freshman for managing their personal finances. Before they hit campus, make sure they know the basics of budget and money management. That way, they’ll be less likely to get into financial difficulties.
It doesn’t matter if your child is paying for their own education, or getting your assistance, or using financial aid, the sooner they learn about managing their personal finances, the better. College is an expensive business, and falling into unwise spending practices is all too easy if you’re suddenly in charge of all this money.
Discuss different ways of financing your child’s studies and the consequences of each one. Installment loans, for example, are one way of affording these college-related expenses.
Create a budget
The first thing your freshman needs to do is to create a budget that is realistic and to which they will be able to stick. Gone are the carefree days of high school, where all you have to do is spend whatever your parents put into your account. It’s now time to take responsibility for one’s own finances and to bear the consequences of unwise spending habits.
It’s vital for college-aged kids to learn the value of money because before you know it, they’ll be looking for their first job and their first apartment. Sit down with your child. List all sources of income, and all expenses you expect.
Look for ways to save
Once you’re both happy with the budget created, your child will begin to understand what is and what isn’t affordable. Maybe they’ll no longer be able to afford a favorite activity. Instead, help him or her to look for free or low-cost social activities. Speak to them about not wasting money, eg. that early morning coffee at the coffee shop adds up to a lot.
Why not make your own coffee to go instead? And if your child loves the latest clothing, it’s time to steer them in the direction of the discount stores. Importantly, allow your child control over their budget.
Explain the difference between “wants” and “needs”
We all want lots of things, but how many of those things do we actually need? There really is a vast difference between something you want and something you need. Here, your freshman is going to have to learn to prioritize their spending.
One way of doing this is to set a weekly cash allowance, with the proviso that once that money has gone, they have to wait until the following week for more. This will teach your child a lot about what they need, as opposed to what they want.
Be careful about credit cards
In 2015, research found that 56% of college students had their own credit card. There’s no doubt about the fact that having a credit card is extremely convenient and much safer than walking around with wads of cash. But as we all probably know by now, credit cards make spending as easy as handing over a piece of plastic and that’s credit card issuers target the students.
Having said that, college is a good time to start building a credit profile to enable future, big purchases such as a home or car. The secret is for your student to learn about using a credit card responsibly.
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