When you have a kid (or a bunch of them!) It feels like they’ll stay babies forever. Even as you watch them grow and learn for themselves how to function like adult humans, it can be really difficult to suddenly realize that the infant that was throwing food at the wall is now graduating high school.
Ideally, kids should be taught how to manage their finances in school or gradually as they get older. However, going to college in the current climate is supremely difficult and as the economy slides deeper into recession, this is the best time for some essential financial lessons.
College kids have already been struggling to keep their finances on track over the years while continuing to eat healthy and make ends meet. However, with some key advice and lessons from their parents — they could make the best of this time in their life.
1. Basic Banking and Finance
Think back to when you first became financially independent. What was the one thing that you just couldn’t figure out? Thanks to the complex world of banking and finance today, there’s a lot of things your college-bound teens need to be experts at.
First of all, they’ll need a beginner or student checking account. This will get them started on basic bank functions like depositing checks, writing them and managing their bank balance. Balancing a checkbook can also be a really tough skill to learn, so make sure you start them on learning to match entries and account for interest early.
You should also show them the ropes of how internet banking works, especially since you don’t want your teen to be scammed or not keep their online bank accounts secure. They should learn the difference between bill payments and account transfers, so that when they’re eventually living on their own the transition will be a lot smoother.
Lastly, everyone should know how to read a bank statement. Even as adults, this task can be stressful and difficult to get through, but some basic tips will be an excellent foundation they can build on later.
2. Essential Credit Score Knowledge
If your kid is going to college, odds are they’re probably taking out a loan. That’s why credit score knowledge comes in handy right now. Just like any other kind of debt, student loans are linked to their credit scores. Even though the payments will likely be deferred till after graduation, you want to make sure your kid isn’t digging themselves into a deeper hole during that time.
Make sure to explain to them how the significant amount on their student loans will affect their ability to get a credit card and get some more money from banks or private lenders. What many younger adults (and some older ones as well) don’t know that every time they try to get another loan, the lender will make a credit inquiry which brings your credit score down even more.
That’s why you should emphasize the importance of managing the loan money and any part-time job salaries they get efficiently.
3. Choosing Student Loan Plans Wisely
Choosing a student loan plan can be a harrowing task and you may feel the impulse to exclude the kid from the process and handle it yourself. This is an injustice to your kid. What you really need to do is look through the options with them.
Assist them in calculating tuition, dorm/rent, textbook and learning paraphernalia costs as well as eating, shopping and basic living expenses. After estimating all these expenses, you can arrive at a basic number and then look for an interest rate and repayment plan that suits you best.
Make sure to advise them not to put too much pressure on themselves to repay the loans as soon as possible. If the repayment per month amount is too high, they could be putting too much pressure on themselves to get employed immediately and start doing well. This may not always happen, which is why a flexible lender with low interest rates like ELFI could work well for your kid’s student loan financing in the long run.
4. Budgeting to the Last Cent
Budgeting seems like the simplest task of all — but it can actually be a lot more difficult for younger adults. College is supposed to be a time when young adults explore themselves and have fun doing it, which is why a budget can feel like its holding them back.
Try to emphasize realistic expectations. There’s no point in allocating money so severely that your kid won’t be able to stick to the budget at the end of the day. Clothing, textbooks, college trips, studying supplies, job interview outfits and leisure spending are all as important as rent, utilities and tuition.
It’s also important to help them create a cushion, in case inflation rises or the dollar depreciates. Finally, there’s a great need for emphasis on smart shopping. Your teen needs to understand the importance of value for money. Splurging on a winter coat that will last them for years is better than buying something that will become useless in 6 months.
5. Understanding Refinancing Options
What many young adults don’t know about college loans that they probably should is refinancing options for their student loans. First, make sure they understand that refinancing won’t solve all their debt problems, but will help them to renegotiate the terms of their payment and the interest with a private lender.
Refinancing usually only works after your kid has graduated college and has a steady income, but you can even get parent loan refinancing to your kid’s name instead, thus alleviating the burden on your credit report.
Refinancing experts have stated that savings from refinancing can help save money, lower interest rates, and also help boost credit scores in the long run. In cases where your kid is having trouble making monthly payments or wants to pay their loans back faster — refinancing is the way to go.
With these basic financial lessons, your young adult will be all set to go to college and make a brilliant professional out of themselves. Just remember that you’ve done everything you could, and your child has to go out in the world and make a name for them now.
You can check out the Education Loan Finance (ELFI) website by clicking here.