Paying for a college education requires a lot of financial planning. Most parents begin thinking about how to finance college many years before a student is ready to embark on a college career. Your college student may or may not be involved in this planning, but whether or not your college student is involved in the bigger financial issues such as tuition and other college expenses, it is important that your student become financially literate in order to survive financially during and beyond the college years.
A growing national problem
Financial literacy involves the ability to read, manage, and communicate about personal finances and to have the skills and knowledge to make competent financial choices about banking, credit, insurance, taxes and investments. How does your student stack up? Most high school graduates don't do very well. High school student spending may create an unrealistic lifestyle. Iowa State University tested high school seniors' understanding of money management. The average score was a 57% – a dramatically failing grade.
Some high schools and colleges offer courses in financial management, and some states even mandate personal financial literacy as a high school graduation requirement. However, in a 2005 study of student financial planning, 70% of students said that that the most significant influence on their money management came from parents. The same study indicated that as a group, college students are more likely than other age groups to avoid bad checks and to pay bills on time. However, they are least likely to save monthly, to have a budget, or to balance a checkbook. Clearly there is room for improvement.
Lack of knowledge concerning money management can land college students in trouble in several ways – some of them unexpected. According to a national study conducted by Sallie Mae, more than 84% of college students have credit cards and nearly 20% of students graduate with a balance of more than $7000. The average debt of graduating seniors was $4100, up 41% since 2004. Perhaps most important, however, is that concern about finances can affect a student's academic performance, mental and physical well-being, and ultimate employment choices. According to Noel-Levitz, in 2009 nearly 30% of students said their financial problems were distracting and troublesome enough to affect their lives negatively. The National Council on Family Relations found that student financial behavior got worse the longer students were in school. In their study, 78% of seniors had credit card debt compared to only 49% of first year students. 49% of seniors said they failed to pay credit card balances in full, while only 29% of first year students failed to pay balances.
What parents can do
Much of the concern about college student finances has focused on student credit card debt. As a college parent (or future college parent) you should certainly talk to your student about appropriate uses of credit cards. However, there are several other important topics that parents can cover with their students to help prepare them for eventual financial independence.
Parents can help students to understand that many small, daily decisions can affect a student's total financial picture. Here are twelve topics we suggest that you discuss with your college, or college bound, student. Don't try to cover these all at once, but open the door and begin to discuss these topics – and help your student practice skills in these areas – early and often.
Income – net vs. gross
Realistic living expenses
Importance of savings and/or emergency fund
Frugality and making ends meet on a limited budget
Appropriate use of credit cards – interest charges, finance fees
Importance of credit history and credit score
Work benefits – insurance, retirement, etc.
That's a lot of topics, and it can seem overwhelming at first. But don't try to cover them all at once. Ask your student how much he wants to learn. You may be surprised at how open and eager he is to learn what you can share with him. Students often indicate they want to learn about practical financial matters – and they say they believe that their parents should teach them. Remember that you'll not only be teaching your student practical skills, you'll also be sharing family values with him.
Of course, the earlier you start sharing financial information with your student, and giving him the opportunity to practice his skills, the more you can cover and the better armed he will be. However, it is never too late. Once your student has experienced the new found freedom of college, and the important decisions he will face as part of that freedom, he may be even more receptive than ever to some practical information and advice. Remember that, as in so many other areas, your student may or may not act on your advice right away. He will, however, be armed for the future.
There are many good resources on the web to help you as you cover these topics with your student. Both you and your student can find helpful information and guides. Here are a few of our favorites. Use them as a jumping off point.
Sam Houston State University Student Money Management Center http://www.shsu.edu/~smmc/
Jump Start Coalition for Personal Financial Literacy http://www.jumpstart.org/
Cheap Scholar http://cheapscholar.org/2011/04/28/top-ten-best-student-financial-literacy-resources-on-the-web/