As students head back to university this autumn, you might have children or grandchildren moving away from home for the first time.
Getting into university is a great achievement. It’s a stage of life ripe with possibility but it can be a challenging time too, not least financially.
Managing rent, food, and utility bills, as well as budgeting with a student loan, can prove difficult and there are plenty of pitfalls to avoid.
Here are five financial lessons you can pass on to your loved ones now, to help them become money-savvy students.
1. The importance of budgeting with income
If your child is going to budget effectively with their income, they’ll first need to know:
- How much income they’re receiving
- When they can expect to receive it.
While a loan for tuition fees is usually paid directly to the university, maintenance loans – to cover basic living expenses – are generally paid to the student. This will likely be done in three instalments, at the start of each term.
Paying monthly essentials like rent is vital, and that might mean ensuring the total rent for the loan period is covered and kept aside when the loan payment is first made.
Only once all essentials are covered and accounted for should your child budget with the money that remains.
Understanding the difference between essential payments and disposable cash is key. Writing down a budget and listing potential incomings and outgoings can be a huge help. It also starts your child thinking about the difference between “wants” and “needs”.
You might suggest paying the term’s rent upfront (if this is an option), rather than monthly.
2. Small spends can add up to huge costs
Writing down a budget can help to highlight unnecessary expenditures or areas where they can make cutbacks.
Adding up, and then averaging the cost of a night out, for example, could help them work out how much money they’d save if they stayed in one extra night a week.
While they might “want” to go out, they won’t always “need” to. Social and community events are a huge part of the student experience, but doing so affordably doesn’t have to mean missing out.
Your child will likely already have a firm grasp on the principles of saving and spending. But the freedom – possibly for the first time – and the large one-off loan amounts involved, might mean that a timely reminder is invaluable.
3. Overdrafts can be helpful if used sparingly
Helping your child set up a student bank account is a great start to their university journey. You’ll need to shop around for the best deal, and many will include interest-free overdrafts and added perks like railcards or retail discounts.
While a 0% overdraft creates a useful buffer at the end of each loan period, your child must understand the dangers of dipping into their overdraft or becoming reliant on it.
Interest, when it does begin to apply, can rack up quickly and lead to soaring debt, so stress the importance of careful budgeting.
4. The need for an emergency fund
A rainy day or emergency fund is an important part of any financial plan. The unexpected can strike at any time and the first year of university is no exception.
Normally, we would recommend putting aside between three to six months’ worth of expenditure in an easy access account.
This can be a useful buffer when an unforeseen expenditure crops up. But your loved one mustn’t panic.
If they don’t have an emergency fund right now, they don’t need to find and stash six months of income in one go.
Just as we’d advise you to pay your future self first through savings and investment, recommend to your child that they put aside a small amount each month, or every three months when their loan arrives. Then remind them to keep this untouched until they have built a reasonable contingency.
This is a great lesson to take into their life beyond higher education.
5. What to consider before using a credit card
A credit card isn’t “free money” to be dipped into at will. But used responsibly, credit could be a great way for your child to learn some valuable financial lessons.
Making small purchases on credit, and then paying them off each month, encourages good money practice, and starts to build your loved one’s credit score.
While they might not need to worry about their credit score during their course, later in life they likely will. At that point, they’ll be pleased with the early lessons they’ve learned and the head start they have.
Get in touch
If you would like to discuss the best ways to financially assist your child through higher education, or if you’d like to begin saving for your child’s future, we can help, so get in touch now.
Please contact us on info@janesmithfinancial.com or call 01234 713131.
Please note
This blog is for general information only and does not constitute advice. It should not be seen as a substitute for financial advice as everyone’s situation is different.
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