Don’t want to talk to your kids about money? Do you think you need to shield them from
overwhelming financial decisions? You might be missing an opportunity to teach fiscal skills using one of the most substantial and impactful purchases in both of your lives: a college education. College could be a transition from a sheltered existence to the real world.
Financial Literacy is Part of a “Guide for Grown-ups”
When students actively participate in college financing strategies, they learn valuable
lessons in long-term planning and monetary decisions. College-bound children can choose the best funding options and avoid pitfalls like over-borrowing. Like memorizing your Social Security Number, learning how to manage debt is integral to growing up.
The First Step is FAFSA
Besides getting a driver’s license, filing the Free Application for Federal StudentAid
(FAFSA) is likely a child’s first exposure to government bureaucracy. During this process,
the child will learn about the importance of deadlines, attention to detail, and accuracy.
When completing the FAFSA and engaging in college financial planning, you should provide enough information for adult-level discussions without undue financial pressure on the child, for whom academics should be paramount.
Discuss family resources for paying for college, such as money in college savings plans,
contributions from income, financial aid, education tax benefits, and affordable debt, when evaluating which colleges you can afford.
Allowing the students to take ownership of the process will give them more skin in the
game. They will be more motivated to get good grades, more likely to graduate on time, and less likely to accumulate too much debt.
Know Your Options: Scholarships, Private Loans, Tax Benefits
Beyond federal funding, your children should explore other options for paying for college. Scholarships are a form of gift aid that does not need to be earned through work or be repaid. But they need to be achieved through getting good grades and investing hard work to write essays and complete scholarship applications.
Private student loans are also available based on credit, not financial need. If a family
needs to borrow from private or parent loans, it may be a sign that they are over-borrowing. Students are less likely to take on too much student debt if they limit themselves to federal student loans.
Education tax benefits, such as the American Opportunity Tax Credit and the Student Loan Interest Deduction, can be claimed on the student’s or federal income tax returns.
Attaining the Proper Work/Study Balance
By the time they apply for college, teenagers have likely earned and hopefully saved wages from part-time and summer jobs. Perhaps they’ve accrued allowance money from household chores or started bank accounts with the proceeds of holiday and birthday presents. Besides instilling a healthy work ethic, earning and saving will teach students the value of money and personal responsibility. Students should avoid working more than a dozen hours a week during the academic year, as this can cause a decrease in academic performance and graduation rates. Working 12 or fewer hours a week will force them to learn time management skills.
A Financial Education
Many young people learn by doing, so take the opportunity to fund a college education to teach your kids about blending a realistic budget with aspirational goals. Talk frankly about what you can afford, what options are available in your income bracket,
and how to complete the steps and paperwork necessary to achieve those goals.
Helping your child plan to achieve their dreams will teach them a lesson worth learning. It will keep money in the bank while putting skin in the game.
To fully buy into a commitment, your student must first have ownership.
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