It’s almost time for parents to send their kids off to college, and this transition can bring with it a blend of excitement and concern. It’s an important time where financial lessons can have a long-lasting impact on children's lives today and beyond their degrees.
Warren Buffett once said, “The more you learn, the more you earn.”
The time before children leave the nest and head to college can be a great window of opportunity for parents to share their most important nuggets of financial wisdom. College Ave recently conducted a survey of college-aged students and found that, overwhelmingly, most students (78%) learn personal finance skills from their parents, significantly ahead of social media (9%) and AI tools (4%).
Whether parents feel equipped enough to share financial knowledge, or if they want to enlist the help of a financial advisor or a money-savvy friend or family member, it’s an important step for kids to start with a solid foundation in financial literacy – a gift that keeps on giving.
College Ave put together some tips for families to tackle college expenses together, turning what can be a stressful process into an empowering and straightforward learning experience.
Embrace Financial Know-How Early
Everyone needs to know the basics of finances. Financial literacy isn’t just about balancing budgets; it’s about laying the groundwork for making wise financial decisions when things don’t work out.
Some important questions that parents can discuss with their children:
- What are the best ways to spend your money and then keep track of what you've spent?
- What do you do if you buy something you soon regret? What are the steps?
- If you go out to eat with friends and they need help paying, what do you do? What do you say? How do you get paid back?
- How do you ensure you have enough to pay for things?
- How do you build and check your credit?
- What do you do if you're stuck and don't have enough money? What if you've lost your phone or your credit cards?
By involving children in financial discussions and decisions, parents aren’t just preparing them to manage their money in college – they’re helping them build the skills necessary for a successful financial future.
Get Comfortable Talking About Money
While talking about money with loved ones, partners, and family members can sometimes be uncomfortable, it’s important for parents to maintain a healthy and open relationship with their teen and soon-to-be college student about finances.
Parents can start by sitting down with their kids to talk about their own financial experiences during college or their early career. And while children might not enjoy the discussion, they will probably still be listening, and it is an opportunity to build that communication bridge.
Set Up a College Budget
Instead of telling their children how to keep a budget, parents can show them and start one together, using tools like an expense planning spreadsheet.
Identify income sources: College and extracurricular activities cost money, so it's best to game-plan all potential income, including part-time jobs on campus, freelance or side gigs, internships, and scholarships that students have as opportunities to make money in college.
Come up with a list of fixed and variable expenses: From tuition to ride-sharing, to midnight taco Tuesday runs, dorm events, and groceries, understanding these is key to formulating a realistic budget.
Include the cost of attendance: Factor in tuition, laptop, headphones, books, travel, and other essentials like lab fees that may be unique to the student's major. For students attending distant colleges, travel costs for visits home should also be considered.
Understand how student loans work: Will the student be borrowing any loans? Make sure they understand how loans work – including interest rates, repayment plans and how this impacts their credit score. The College Ave survey found less than half (47%) of those who plan to borrow student loans understood how interest rates work. Use a tool like a student loan calculator to see how interest rates and different repayment terms affect the monthly payment and total amount owed.
Explore and utilize tools: Apps like YNAB (You Need A Budget), or even a simple spreadsheet can help keep track of finances.
Start with the 50/30/20 rule: A simple recipe to allocate income – 50% on needs, 30% on wants, and 20% on savings or debt repayment. As earnings increase, these figures can be personalized with a financial advisor.
Allocating Money Wisely
Parents can encourage their teen to save (and keep!) at least $500 to $1,000 as an emergency fund for unexpected expenses.
Plus, parents can encourage their children to attend online financial literacy workshops (many college campuses offer these now), read personal finance news, and tap into resources such as books and online content. Parents can discuss the importance of having a ‘money buddy,’ someone who is also smart about their finances. Having a grounded support system at college is crucial not only for friendship and academics but also for managing financial social pressures.
Involving children in creating and maintaining a budget not only teaches smart and prudent financial skills but also promotes a sense of responsibility and independence. As families navigate this significant rite of passage to college, by investing time in teaching their kids about finances, parents are setting them up not just for college, but for life.
By following these financial steps, parents can empower their kids to embrace their financial independence with confidence and savvy.
This story was produced by College Ave and reviewed and distributed by Stacker.