Financial education to prepare students for college
You send your student off to college. For a day or so, you enjoy the bittersweet quiet of an empty nest. Then—wait for it—the first call comes in: “Mom, Dad. I need more money.”
That’s not unusual, given that orientation week often includes a busy bazaar of credit card offers, subscription services, savings plans, not to mention dorm decor, mini-fridges and other sudden necessities. It can be overwhelming—unless you’re armed in advance with knowledge.
Too many young people get their financial education from the school of hard knocks. And it’s surprising how many young people haven’t mastered the basics: balancing their accounts, living on a budget, managing credit or understanding the importance of compound interest.
But it’s never too late for a crash course in financial literacy, helping them understand their options and prevent financial blind spots as they face the brave new world of adulting. But it’s also never too early to start.
Financial literacy should be habit-forming.
Through allowances and summer jobs, young people get their start as wage-earners. The most conscientious put aside money for college, but the temptation is always there to spend on immediate needs and wants. That’s why it’s important to build sound practices into regular habits:
Show them how to reconcile bank records online.
Online banking makes it easier to keep track of your funds, but that doesn’t preclude the need to do a monthly balance Old School.
Q: “Why do I have to do this?” A: “Because it’s your money.”
Help them learn to live on a budget.
Have your students itemize all the regular expenses that will accompany college life. Then try an experiment: Give them a set amount based on that budget (with a small cushion for “extras”) and ask them to stick with it for a month (or more). A budget rehearsal can open their eyes to the real-world demands their finances will face.
Teach them about handling credit
It’s oh, so easy for students to access credit—and equally easy for them to get over their heads fast. Have them compare APRs on the different cards they’re offered. Start with a card with training wheels—a low limit. Underscore the importance of paying on time so they don’t incur penalties.
Now is also the time to bring them up-to-speed on credit scoring—and why being late paying their bills can bite them later in life. Building a solid credit history now can add up to benefits when they need to take out bigger loans—or even a mortgage—down the line.
Reinforce the importance of saving consistently. Student loans are a necessity for most students today—and a continuing burden on the adults they become. So saving and accumulating funds to ease that debt should be fundamental.
Perhaps your student will take on a part-time job to cover expenses. The key again is consistency: “Every month, pay yourself first.” Even before they pay their regular bills, have them put aside a set amount, no matter how small—but do it faithfully.
Small amounts add up when you factor in compound interest. Take a conservative example: Your student opens an account with $50 and contributes $50 a month. Compounded annually at 4% over 15 years, the funds will grow to $12,104.20.
The earlier a student starts a savings habit, the greater the power of compound interest.
A great place to start
Your Webster Banker can help fill in the gaps in your student’s financial literacy: recommending savings strategies, educating about student loans, informing about credit, and helping establish a plan to reduce student loan debt and build assets for those big goals ahead in life.
The opinions and views in this blog post are those of the authors, and are not intended to provide specific advice or recommendations for any individual. The Webster symbol is a registered trademark in the U.S. Webster Bank, N.A. Member FDIC. © 2019 All Rights Reserved. Webster Financial Corporation.
© 2019 Webster Financial Corporation. All rights reserved.