Washington D.C.– Parents preparing to send their high school graduates away from home for the first time should remember to pack some financial advice in those college-bound bags, boxes and suitcases.
“As parents we have done our best to prepare our children to leave home and go out into the world of college and/or career,” said Kevin Weeks, president, Financial Counseling Association of America. “However, many of us have failed to prepare our kids for financial independence and high schools fail them in this area as well.”
FCAA recommends three things parents need to review with their college students to prepare for financial independence. Use this time as a jumping off point to establish critical money management skills.
1. Explain how credit works. Credit could include includes both credit cards and student loans. Understanding how both work is crucial to a student’s future success. Make sure your teen knows using a credit card is not free money but is a means of putting off paying for purchases until a later date. The bill will arrive and the creditor will expect to be paid. Charges add up quickly and without a spending plan a teen can end up in credit card trouble in a hurry. Student loan debt in America is at an all-time high. Be sure you and your student research all student loan options and be careful to only take out loans that are necessary. Taking on too much student loan debt could follow your student for decades after graduation and this creditor will also expect to be paid eventually.
2. Create a spending plan. A map of where you are going is the best way to avoid losing your way on the road to financial independence. Together, you and your teen should sit down and develop a spending plan. Write down all college expenses: tuition, books, room and board, toiletries, entertainment, etc. It is important for your student to know all the costs of college and from where the income to pay those costs comes. For example, scholarships, loans, money from the family or some combination of these may pay for tuition, books and room and board. Other income such as a part-time job or spending allowance will determine the amount that is available to spend on the remaining expense items in the plan.Students should come away from this session with a good idea of how much they will have available to spend each month. This plan will also be helpful in determining the amount of student loan money that must be borrowed, if any.
3. Agree to a no bail out agreement. Reach an understandingwithyour student that they will take full responsibilityfor their finances at college.As with any new responsibility, some college students will end up charging more than they can afford, run out of money before the end of the month, or be in debt to their roommates. While a parent’s first reaction is to send money and bail their child out of the financial hardship, if they do that the child will not learn the financial lesson of overspending. Instead, let your studentfigure out that they will have to work on the weekends or stay at home when their friends are going out to earn or save money to pay off their debts. They are much less likely to make the same mistake twice when the solution must come from them.
About FCAA: The Financial Counseling Association of America was founded in 1993 as the Association of Independent Consumer Credit Counseling Agencies. FCAA is a national membership organization established to promote quality and professional delivery of financial counseling services. FCAA and its members are focused on financial education, efficient processes and advanced technology to best serve consumers. FCAA members are independent nonprofit agencies that advocate for debtors and annually counsel more than 600,000 consumers. Visit www.fcaa.org for more information.