There’s a lot of think about when planning for your child’s post-secondary education, and the subject of money is not far behind the conversation.
Knowing how to manage money is important to the university experience. Whether your freshman is utilizing scholarships, paying their own way, receiving help from you, using financial aid, or all of the above, college is an expensive rite of passage that can become even pricier with poor spending habits. It’s important to equip your freshman with the tools he or she needs to start higher education on the right financial foot.
Here’s how to get started.
Open a Savings Plan
With the cost of tuition on the rise, parents are urged to help their children save for the future as soon as possible. For students living in the United States, that may mean opening a 529 plan, a college savings account that’s exempt from federal taxes. There are two types of 529 plans: prepaid tuition plans and college savings investment plans. Any U.S. citizen or resident alien 18 years old or older can open one and typically, the beneficiary is a child, grandchild or younger relative. However, an adult can also open a 529 plan to save for his or her own higher education costs since there are no age restraints.
Similarly in Canada, Registered Education Savings Plans, or RESPs, can serve as a helpful way to invest in a child’s future education and are offered through organizations like Children’s Education Funds, Inc (CEFI). Parents can contribute a lifetime maximum of $50,000 per child, and the money grows tax-free for as long as it stays inside the plan. RESP providers like CEFI are experienced in matching families with the correct type of RESP that fits their financial needs.
Teach Children How to Budget
Up to this point, high school students have had the pleasure of living off their parents’ generosity or enjoying the earnings of a part-time job. Once your student moves away to college, a budget becomes crucial.
It’s important that you sit down with your child to map out his or her finances. Determine a monthly allotment of income, including money you’ll provide, income from a job, and money coming from student loans, grants, and other types of financial aid. Then, show your freshman how to identify upcoming expenses (like rent, food and entertainment, etc.) so he or she knows where it’s all going. This is a good way to ensure he or she has a clear picture of what is and isn’t affordable.
The trick with any budget is sticking to it, but allow your child to take the lead – after all, it’s a good way to set them up for a financially successful future. By laying out a solid foundation of training and passing on some words of wisdom, your freshman should make it through the first year without a hitch.