Talking to your children about finances and the cost of education doesn’t have to be a burden. Helping your child start their college career on the right foot, especially when it comes to financial literacy, is vital and can set them up for a successful financial future throughout their life.
Discussing money-related topics frequently and openly with your child can encourage them to embrace financial independence rather than assume they will need to rely on parents and other family members to help them through college and into early adulthood. By having these types of open conversations, your child will have the opportunity to learn, ask questions, and helps them see the bigger picture when it comes to personal finance decisions. Here are six ways you can get your high school senior financially ready for college.
1. Discuss financial literacy in a way your child will understand.
Your child will need guidance as they branch out on their own. It’s important to teach your children financial literacy and other personal finance topics such as budgeting, saving, and managing their money. You can do this by showing them how to map out their income, monthly expenses, and tips they can use to learn to live within their budget. If your child does not currently have a checking or savings account, now is an excellent time to help them open one.
- Be sure to explain the importance of keeping a positive balance in their account(s) at all times.
- Encourage them to find “free” accounts that don’t require a minimum balance and have no monthly fees.
- Emphasize the importance of saving money and building an emergency fund for unexpected expenses.
- Explain the benefits of using tricks to save money, such as purchasing used textbooks, using coupons when buying groceries and household items, and cooking meals at home instead of eating out at restaurants regularly.
It is also a good idea to discuss their ideal lifestyle – is it financially smarter for them to live on-campus in a dorm or rent an apartment with roommates? Where do they want to live after graduation? These are essential questions your child should ask themselves to help set the foundation for making financial decisions.
2. Establishing Credit
Establishing good credit from a young age is essential to building a good credit history. Your child can build credit in a few different ways right after turning 18 or graduating from high school. Talk to your child about opening a secured credit card. The longer a credit card account is open and in good standing can have a positive impact on their credit score as they get older.
Be sure you discuss good credit card habits, including keeping a low balance, how interest rates work, and strategies they can use to create a good credit history.
If your child makes a purchase using their credit card, advise them to pay the balance off in full each month. Carrying a balance on your credit card can impact your interest rate, balance owed over time, and credit overall history.
3. Discussing College Education As An Investment
A college education is one of the most significant investments anyone will ever make. There is more to the college experience than getting good grades, making friends, and showing up to all of your classes. Your child should understand how important it is to live within their means and stick to their budget each month. Help them know where their money is going when it comes to tuition – every missed class could equate to a financial loss since they pay for education at the beginning of each semester.
4. Financial Aid
Even if you have a 529 plan or will pay out of pocket for your child’s education, it is vital to apply for federal financial aid by filling out a FAFSA (Free Application for Federal Student Aid) form every year of college. Federal student aid isn’t just for student loans. It also includes grants and work-study eligibility.
- If your child doesn’t have a 529 savings plan or enough funds to cover tuition and other education-related expenses, they may need to apply for federal student loans. There are limits to the dollar amount of federal student loans you can borrow each school year.
- Don’t borrow more than needed. Showing your child ways to minimize student debt where possible will lessen the amount they owe after graduation and help set them up for success when paying down student debt.
- Discuss ways to spend any leftover money responsibly and use student loans for essential school or living expenses. They can also pay down loan interest with any excess student loan money.
- Working while in college: Many college students have to work while in school to bridge the gap to pay for living expenses when their financial aid or money from family has exhausted. Be sure you and your child are on the same page about what type of job they should have, how many hours they need to work each week to balance working while going to school, and what expenses their pay should cover.
5. The Value of Saving
When talking to your child about personal finance, it is essential to discuss why every expense in their life should be viewed as an investment.
Teach them how to choose wisely. Show your child ways to recognize necessary expenses, such as paying rent or utilities, versus things they want, like buying concert tickets or traveling during school breaks. They must know that saving money is valuable in the long run. They can have things they want and need if they budget and save properly over time. It’s also helpful to explain the importance of saving extra money for future expenses, such as holding a portion of their paycheck for future tuition payments or rent and utility payments.
If your child feels overwhelmed when looking at their budget and expenses, let them know they’re not alone. Everyone starts somewhere, and small habits can lead to significant results over time when saving money.
6. Online Tools and Apps
There are several free budgeting and savings tools your child can use to stay on track of their finances.
Online Banking: Most banks have online banking capabilities and apps for mobile devices to quickly and easily access your checking and savings account information. Once your child has a bank account, encourage them to use their banking app to track how much money is in their account(s).
Free budgeting Apps:
Mint: used for budgeting and credit score monitoring
Wally: used to keep track of spending and to set personal finance goals
Personal Capital has free personal finance tools to help your child focus on investing or saving for retirement. It also has a comprehensive asset allocation tool to determine net worth that could be useful after your child graduates college and starts their career.
Albert is a mobile banking, savings, and investing app with access to planning experts. This handy app can also show you where you can cut back on spending each month.
Have you heard of the envelope budgeting system? GoodBudget is an app designed to help keep you on track with a time-tested budgeting method by using digital envelopes instead of paper envelopes and cash.
Remember, the most important thing for your child entering college or moving out on their own is that they understand basic personal finance concepts, have money management skills, and feel confident with their financial picture before entering this new chapter of their life.