By: Jean Chatzky, SavvyMoney.com
Congratulations, parents: You’ve gotten your kid through high school, and you’re ready for the college drop-off in just a few weeks. Chances are you’ve got the twin XL sheets and mini fridge, but there’s one more thing to add to your to-do-list: A frank conversation with your child about money. However you and your family decide to cover the costs of college, your student needs to be an active participant in the process. Here’s how to make sure you’re setting up your student for financial success — in college and after.
“As parents we work so hard for our kids to get good grades and we’re so anxious about all that, but we don’t talk to them and deal with them enough about money,” says Michael Conway, CEO of Conway Wealth Group, who has put his three children through college. He acknowledges that the topic can feel taboo, even in families. “Money is a very difficult thing to discuss,” he says. “My encouragement to parents is to have the candid conversation about the sacrifice and what it actually costs.” Even better? Start when your child is in middle or high school and begin to talk about college and how your family will afford it. If you have a 529 or other college savings account, show them how much is in it and let them watch it grow or make contributions. “Having a candid dialogue with your child and student is huge,” he says. “Many of us avoid these conversations and make assumptions.”
Ellie Kay has a saying about her seven children: “Our love for them is unconditional, but our money is conditional.” The author and founder of non-profit Heroes at Home has put seven children through college debt-free. Before each went off to college, she and her husband helped him or her set up a budget and outlined exactly what expenses they would cover. They used Mint, a personal finance and budgeting app, to see if their children were staying on budget while in college, and would give them a gentle nudge if they thought they were going over. Allowing their children to manage the money — and sometimes fail — taught her kids invaluable lessons. “There were times when our students had to do the whole ramen thing because they ran out of their budget before the end of the month,” she said. “And we were ok with that.”
Every family divides college expenses differently. However your family is planning on paying for them, the most important thing is transparency. Your child should know what the plan is and what the expectations are — for example, who will be paying rent and utilities when they move off campus? Do you expect them to get an on-campus or work-study job? What about spending money for going out with friends? Make a list of all the costs that are associated with school outside of tuition, and figure out who is responsible for paying each expense. “I think one of the biggest changes here is we need to start treating our kids like adults at this point,” says Conway. “Along those lines and having those conversations we need to determine a budget and tell your child what you’re willing to invest in and what you’re not.”
The biggest way to get your teen to take college seriously? Give them a stake in their own education, Kay says. For her, that meant she would pay her part of the college tuition as long as her kids kept high enough GPAs to earn their scholarships. For other families, that might mean paying for their own textbooks and laptop, or paying a portion of their rent with summer job money. Whatever that stake, big or small, make it clear and stick to it.