Financial Planning, Pensions Advice, Financial Adviser Dunfermline, Fife, Edinburgh and Central Scotland

Thursday 24th May 2018

With just four months to go until the new university year, is your child likely to spend wisely, or blow their entire student loan in the first month?

Anyone who’s been a student knows that excited feeling of receiving a student loan payment. Unfortunately, that elation is often balanced out by the feelings of hunger once that money runs out, and the feeling of time standing still as you wait for the next instalment.

There are some mistakes you must make yourself, to learn how to manage money efficiently, but that doesn’t mean that you can’t try to prepare the next generation for the financial landscape that lies ahead of them.

With a dire lack of financial education in schools, students need to know that the mistakes they make during university could last well into working life and even affect their ability to buy or rent a home.

Four things to bring up

Not every teenager is going to want to sit and listen to a lecture on managing money (no matter how well that might prepare them for the amount of studying that lies ahead of them!). But there are a few key topics which you could slip into the conversation to distribute wise, parental knowledge:

Budgeting:

It sounds obvious, but unfortunately the cursory “Don’t spend it all at once” isn’t always enough of a warning.  Research from NatWest has shown that as many as 65% of students are budget-conscious and try to keep track of their spending. Though, some admit that they don’t always stick to their self-imposed limits.

Talking about budgeting can help to ensure that your child’s money supports them from the day they receive it, until their next payment date. This may also be a good time to talk to your child about the availability of credit…

Credit:

Most student bank accounts now come with overdraft facilities, and lots of providers even offer student credit cards.

As a parent, it is not abnormal to feel uneasy about these services, but there is a silver lining if credit is used correctly. The credit used by students during their time at university will create the foundations of their credit report and score. They will depend on this to access credit in the future, including when they apply for a mortgage for their first home.

Now is the time to make sure that they understand how to use credit and the importance of making repayments regularly and on time. You may also like to take this opportunity to teach them about good and bad credit providers. For example, ‘payday loan’ companies, who take advantage of those in financial difficulties, have extortionate interest rates and can interfere with the ability to access credit in later life.

The emotional impact of financial responsibility:

Okay, so it’s not a practical tip for managing money, but with more than half (51%) of students reporting that managing their money has made them feel stressed.

To better prepare your child to manage their own money, it may be worth reinforcing that mistakes are natural and equipping them with the contact details of some money management resources, such as:

Savings

The often-seen stereotype of students eating cans of cold beans whilst struggling to make ends meet might not lead to the conclusion that students should be saving more. However, with sensible budgeting and by overcoming that urge to buy everything in sight, students can start to put a bit aside for either emergencies, or their future.

It might not be possible to do both and having an emergency fund should definitely be the main priority if so. However, if your child can afford to put extra cash aside, it might be worth considering a Lifetime ISA (Individual Savings Account) for them. This can be used to save a maximum of £4,000 per year toward the deposit for their first home and retirement, with a 25% government bonus on all contributions.

For emergency savings, however, student’s will need an account which offers easier access, such as a normal savings account. However, you might need to discuss the meaning of the term ‘emergency’ (hint: craving a McDonalds doesn’t count!)

Getting organised

Student life can involve a lot of moving around. With many young adults changing their address every year, they need to know just how important it is to keep their details up to date. For instance, simply forgetting to tell a utility provider that you have moved to a new house, could result in unpaid bills and a CCJ against your child.

For more advice on talking to younger people and helping the next generation to develop good financial habits, feel free to get in touch with us.