Earlier this summer, a story went viral that detailed how one college junior, Kim, squandered $90,000 from her college fund on frivolous purchases and a European getaway. Since the fund — which was set up by her grandparents — is now depleted, Kim owes $20,000 for senior year tuition. She isn’t sure how she will pay the bill on her own, and says her parents never taught her how to properly budget.
This is certainly an extreme example of improperly handled funds and miscommunication, but it does open the door to a bigger, significant conversation. Are parents and teens missing the mark when it comes to college financing and day-to-day budgeting? What are the best strategies to ensure the efficient use of back-to-school funds?
I recently spoke with CNBC reporter Kelley Holland about a similar topic for her article “Money skills to survive college.” We discussed tips that college students should understand to keep their funds safe, and how parents can impart certain budgeting lessons onto their children. Below, I expand on these tips and explain how parents and grandparents can work with the child to make efficient and responsible financial decisions during the school year.
One of the most important elements – especially if grandparents and parents are financially supporting their child through school – is to make sure everyone is on the same page. Hold an annual meeting before heading back to campus where elements like co-signed loans and gifted money is discussed. Come Christmas break, have another “half-year report” to check on how the student is handling their finances. What worked and what didn’t in terms of budgeting, and how are other efforts going (for example, is it time for them to get a part-time job to fund a portion of their lifestyle?, etc.). Having frequent meetings impart structure to an 18 or 19-year-old, and might spur them to take financial responsibility more seriously.
For parents or grandparents who give their student discretionary funds, determine whether one lump sum at the start of each semester, or monthly installments, will work better. Perhaps start with baby steps and give them a monthly stipend to see how well they budget the funds, and then “graduate” them (pun intended) to a larger amount of money over a longer stretch of time. This strategy of providing them with any kind of cash flow does have a larger impact. Learning important budgeting skills early on will help students once they are receiving paychecks and have their own financial responsibilities (rent, utility bills, etc.). It’s all about learning and instilling good habits that students can transition into adulthood.
For families that are helping a child through college, keep an open line of communication between all generations. With certain controls in place, meetings to review what is working and what is not, and the student’s own willingness to learn, young adults can acquire solid financial life lessons that can be carried well into adulthood.