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There are plenty of things to prepare your student for before they head off to college – maintaining a healthy diet, staying on top of class assignments, living with a roommate, etc. One thing that should not be overlooked is preparing your student to make educated financial decisions. Starting your student off on the right track can help them make good choices about spending, saving, and borrowing. Smart choices right now can help young adults avoid unnecessary financial stress in the future.
Tip #1: Talk to your student about financial basics, like creating and sticking to a monthly budget.
Having this discussion will help your student make better choices about spending and saving money. You can break it down into four steps:
Step One: Build a basic budget. Start with income – or money coming in from things like part-time jobs – and then subtract expenses. When adding up expenses, consider both variable (utility bill, gas, groceries) and fixed expenses (rent, student loan payments).
Step Two: Create a savings plan. Once you know what’s left after expenses are deducted, set a monthly savings goal. It can be a specific dollar amount (e.g. $100) or a percentage (e.g. 30%).
Step Three: Set spending money. Once mandatory expenses and savings contributions are blocked out, the rest can be allocated to the “fun stuff” – like eating out, going to the movies, etc.
Step Four: Make regular adjustments. Naturally, expenses and spending will fluctuate over time. It is important to make these budget adjustments to stay actively aware of spending and saving behavior.
For more info, check out The College Student’s Guide to Budgeting.
Tip #2: Discuss how your family is paying for school, including who is responsible for paying back any student loans.
This can be an emotional conversation, but it’s important for students to understand how the bills for school are being paid, particularly if they’ll need to pay back student loans.
Federal Direct Unsubsidized and Direct Subsidized Loans (a.k.a. Stafford loans) are the most are the most common types of federal loans made to undergraduate and graduate students. These loans are made in the student’s name, and the student is solely responsible for the debt.
Federal Direct PLUS loans for parents (also known as Parent PLUS) are made to parents, not students. The parent takes sole responsibility for these types of loans.
Read more here.