Across the nation, parents are bidding a tearful goodbye as their excited teenagers head to college for the first time … or bidding on that home fitness center on eBay, as they turn their son or daughter’s room into an in-home gym before the car’s even left the driveway.
We can’t help with the emotional aspects, or with putting the workout equipment together. But when it comes to nurturing financial skills and wisdom, SageVest Wealth Management and SageVest Kids are valuable resources for you and your family. Following are a number of points we recommend discussing with your teenager, or in collaboration with one of our advisors, with a goal of launching your young adult on the road to life success as well as the road to college.
The fundamental concept of budgeting is to ensure that what goes out is always less than what comes in. Discussions with your college student should incorporate a monthly budget that balances income and expenses. It should also look longer-term, considering your daughter or son’s potential post-graduate income and lifestyle.
Monthly budget: Help plan and implement a realistic budget that’s easy to track. Explain the differences between needs versus wants, and how splurging in one area means saving elsewhere. Pinpoint specific costs they will be responsible for, such as clothing, snacks and entertainment. Encourage your teen to plan ahead for bigger expenses like Spring Break vacations. Most importantly, ensure that the budget is flexible enough to accommodate change.
Long-term budget: Together, devise a ‘roadmap for life’. Draw up a basic income and budget estimate based on your student’s chosen career. Explain the standard of living their potential career will allow for. Factor in undergraduate and graduate school costs, car payments, regional housing variations, any student loan repayments, and don’t forget taxes.
College isn’t just about studying, so include some entertainment expenses in the budget you create together. However, with plenty of free activities, student entertaining should focus more on meeting on campus and making use of meal plans, or sampling new recipes in the dorm kitchen, than eating out.
3) Bargain Hunting
Student status often offers discounts at venues, restaurants, and other vendors. Looking for discounts can save your student money and also teach them the value of a good deal.
4) Buying Textbooks
The Bureau of Labor Statistics estimates that college textbook prices have risen a whopping 1041% since 1977. Fortunately, there are lots of ways to cut costs. Consider renting: many colleges now offer textbook rental programs. If a book must be purchased, a used copy in good condition may suffice. Other students often post secondhand options on closed college listservs and campus bulletin boards. If a new book is required, look at online retailers like Amazon, which are often cheaper than campus bookstores.
Colleges often restrict campus parking. Even if they don’t, there’s usually a fee involved for the privilege. If your student needs a car at college, use it as an opportunity to foster an understanding of short- and long-term expenses. Discuss car loans and repayments, maintenance costs, state emissions and registration requirements, and how car insurance works. (Bear in mind that your own insurance costs will rise as your teen starts to drive). Consider having your son or daughter pay for an aspect of their car use, such as gas.
Encourage your teenager to get a part-time job or internship to pay out-of-pocket expenses and perhaps most importantly, to gain work experience in a chosen or contemplated field. You can help them create a polished resume, fill out the necessary paperwork once they start work, and submit their first tax return. Note that any income your child generates will be included in FAFSA calculations for Federal college aid.
By now, your son or daughter should have a bank account (hopefully funded with savings of their own) that’s accessible using a debit card. Explain the difference between debit and credit cards, including the concept of interest and how to avoid accumulating credit card debt that can be difficult to repay. To this end, explore introductory cards that allow low credit limits and avoid overdraft fees; and, if appropriate, help your teen to apply for a credit card. It’s better for you to help organize this important financial step; credit card companies often prey on inexperienced freshmen, so caution them about on-campus solicitations. Using a credit card responsibly will help your young adult acquire a good credit score for the future, preparing them for their first car or home purchase.
Finally, ensure that you have a quick method (via a bank account, PayPal, or Western Union money order account) to transfer cash in an emergency.
8) Online Services
Online apps like Mint enable students to consolidate and manage their finances online or via their mobile device. This fosters increased financial responsibility and easier access. It also helps prevent missed payments and late penalties.
9) Protecting Personal Information
A combination of inexperience and online activity means that your college student is at high risk of identity theft. Caution your teenager about the need to safeguard their information. They should never share passwords, provide their Social Security number unless it’s essential, or leave personal documents lying around. Encourage your student to monitor accounts on a monthly basis and explain credit reports and how to obtain them.
Going to college is an exciting life chapter for your teen. It’s also a learning experience. Encourage your son or daughter to seek help when needed. Sometimes sharing a financial mistake you made or a challenge you faced when you were younger can open the door to open and honest communications. And, if you’re stuck on an answer, feel free to call us and ask!
SageVest Wealth Management cares about you, your family and our future generations. We place a special emphasis on the financial education of the next generation. For young adults, this includes ‘Investment 101’: a discussion about the value of compound interest, intelligent investments, and diversified portfolios in building long-term wealth. For children ages 3-18, SageVest Kids website offers a unique blend of developmental overviews with age-appropriate financial discussions and resources, all presented in clear and understandable terms.
Clients and their children should feel welcome to contact us at any time to schedule an ‘Investment 101’ session with one of our advisors, or to discuss financial education for your children.