Every time I hear the Christmas song It's the Most Wonderful Time of the Year played in July and August I find myself smiling. I am sure the kids out there do not have that same reaction but I can assure you many parents do. Going back to school is a rite of passage but there is so much that goes along with it for everyone in the family.
What if I told you that children usually reach adulthood without a realistic sense of a family's finances and are not having the necessary 'courageous conversations' about money because information-based money discussions are considered off-limits? This blog post is geared towards university and college aged kids, so whether they are a new student or returning for another year, here are four tips to help set your child up for a successful school year.
1. Have a money conversation with your child before they go back to school.
You are the role model for your children when it comes to money so you need to sit down with them to have an honest and open conversation. You need to be the one providing guidance to help them build good spending habits so that the money does not run out before the end of the month does. Draw up a monthly budget with them and ask them what strategies they think they can put in place to be able to live within their means. Ask them how they think they will be able to cope the next month if they go over budget the month before. The only way they are going to learn is if they have to think it through, so as hard as it might be do not help them work through it, let them tell you first!
2. Talk to them about credit cards that are often handed out like candy on University campuses.
Now don't get me wrong here! I am not saying that credit cards are bad but more than one is a recipe for disaster. I have heard way too many stories about students ending up thousands of dollars in debt because they have more than one card and each one is maxed to the limit. Some kids are using one card to pay off the other and hardly making the minimum monthly payment let alone eating.
If you want your child to have a credit card for things like buying books on campus and bus passes or for emergencies, then consider putting a low maximum on the card (e.g.: $500). This way they will not always be calling you to transfer money into a bank account for them but they will also not be running up huge unpaid bills that you might not know about until it is too late. With a credit card like that, you can monitor the usage even though you're not always with them, especially when they are away in another city.
However, no matter how hard you try as a parent to keep them out of harm's way you cannot always be with them. Sometimes students take on additional credit cards they can get on campus without understanding the fine print. Therefore, make sure to have a conversation with them before they leave for school about the damage they can cause to their future credit rating if they rack up big credit card debt while in university. I know of one kid who ended up over $4,000 in debt from having four credit cards in first year university. It seriously affected their credit rating and because of that poor credit rating, they did not qualify for a new graduate 0 per cent financing rate on the first car when they landed their first job. They ended up having to take out a loan at 8 per cent and it took them six years to repair their credit rating.
3. Tax tips for students and parents.
Many students think they do not need to file a tax return because according to them they are dirt poor. Well, tax agencies wear a different set of glasses than they do and they are not sunglasses. Parents: you also need to be aware of what affects you from a tax standpoint while your child is in school. The Canada Revenue Agency website and the IRS website contain information for both students and parents around a number of important topics. Therefore, it is worth taking some time now to check them out because it will save you a lot of time and headaches at the end.
4. Insurance coverage for personal items.
There is so much going on when your child is returning to school that insurance on personal belonging is often lost in the chaos. Statistics show that there are nearly 4,000 fires each year in university residence halls and over 12,000 thefts. So taking into account these statistics, it should be easy to see the need for insurance to protect your child's property.
Think about this; you purchased a brand new computer for them to start the year off with, they have the latest and greatest electronic device to stay in touch with everyone, they might have a TV in their room, a closet full of clothes and a stack of outrageously priced mandatory textbooks. Your kids could easily have $10,000 worth of belongings in that closet called a dorm room.
So check with your home insurance provider before sending him or her off to university and find out if their belongings are covered under your homeowners policy or do they need a standalone policy to cover their belongings while they are away from home.
There is a lot that goes on from a financial, practical and emotional standpoint when it comes to your kids leaving the nest and going off to the hallowed halls of higher learning. The best way to make it a pleasurable experience for everyone is by maintaining an open family dialogue, equipping everyone with the correct information and setting your child up for success from the get go. Good Luck!