Money discussions between parents and students can be uncomfortable, but must not be avoided
Before your family discusses your College budgeting for tuition, room, board & living expenses, read What Can Parents Teach Their Kids About Money, regarding the related topic of learning to be financially literate. My family’s budget decisions are somewhere between those families who pay for all of their student’s education, including all of their living expense and those families who either choose not to pay or can’t afford to pay for any of their student’s education and living expenses. I would say our budget plan is towards the more generous side, because we were in the position to help our kids avoid financial debt as the means to pay for College. We made that goal a a high priority. Fortunately, because of our strong financial position and careful planning, we were able to make that happen.
My guess is that some of you will read our family’s budget plan and think, “LUCKY!” and others will think “No way would I let my parents make me pay for so much or live with so little.” To each his own…
I am choosing to share our budgeting plan, because before we came up with this plan, I felt overwhelmed with how to make these decisions. But I felt uncomfortable asking other families how they handle College budgeting, as it can be considered a very private/sensitive topic. On that note, I apologize if you feel this post is too preachy or judgmental. Please comment on this post if you would like to share how you set your College budget.
College Budgeting – Tuition, Room, Board & Living Expenses
We had accepted the fact that our choice to prioritize academic rigor, extracurricular activities, family time and enrichment opportunities did not allow our daughters a lot of options for working while in High School. But we felt strongly they needed to have some skin in the game, when it came to paying for their College expenses. Fortunately, their academic excellence netted some merit money to help take some of the pain out of paying for College. While this might not be the most straightforward approach, we made decisions on who was paying for what in College based partly on how much money they had saved. Our daughters do not qualify for financial aid, which makes it more difficult to get an on-campus job, which also factored into our budget planning.
I was amazed at how many family and friends sent a generous check when my daughter sent out High School graduation announcements. As the money came rolling in, the first thing I said to my daughter was, “You think you are rich right now, but you’re not. This money is going towards College expenses.” Kill joy? Maybe, but I wanted to be clear, before she made plans on how to blow her wad! We also made a point of using separate savings accounts for better budget tracking, so she wasn’t going way over budget on her discretionary monthly living expenses, using money that was to be earmarked for books and school supplies.
Most people are more careful when they are spending their own money
Our daughter wanted a high-end laptop, and again we felt she must have skin in the game, so we told her she had to pay for half the laptop, and we would pay for the other half. We made a point of telling her this early in her Senior year, so she could make wise choices about how she spent any money she earned, and to motivate her to find work during the summer before she started College. Part of the reason for our decision was because a student is more realistic about what they MUST have in a computer (or a car, or whatever expensive item they are buying), if they have to pay for all or some of that cost. We had multiple computers available in the house for our daughters to use, but we did not give them their own laptop while they were in High School. Again, everyone makes their own priorities. Our decision to deny them their own personal computer was partly to avoid the cost of that luxury and fuel high expectations, and partly because we felt a teenager with their own computer doesn’t have a lot of reasons to leave their bedroom. We heard some grief about this, but I can tell you it made getting her laptop for College much more exciting for our oldest daughter, not to mention the fact that she got to start College with a new computer, not one she had been using since Freshman year of High School.
This is how we worked out our daughter’s College budget:
Tuition/Room & Board
No full-time summer work meant there was no way she could save anywhere enough to make a dent in these costs. Since they were also fixed expenses (and not subject to her spending whims), we chose to pay for all of her tuition, room and board. We were fortunately in the position to do so, not only because we had a good income, but also because we started saving for College literally the day she was born. If you are paying for College with no help from your parents and through student loans, it’s a great idea to use those loans solely for those things you can’t afford to pay for with any money you have saved and any income you earn while attending College. The smaller the loans, the smaller the payment after you graduate, and the sooner you will pay off those loans.
Books/School Supplies
Because of generous High School graduation gift money, I knew my daughter had enough money to pay for a year’s worth of books and school supplies. Do an internet search to check the average cost of College books/school supplies, to help you budget this expense. I didn’t feel bad about this practical use of graduation gift money, because I think most people who gave her money wanted her to be at least somewhat practical with that money. I believe Graduation gifts are not only an expression of “Good Job!”, but also a recognition that a College student has some big expenses coming.
Spending Money
I asked my daughter to spend a week calculating all of her living expenditures, from toiletries to an occasional meal out, so she could come up with an estimate on how much she would need to pay for her living expenses on a monthly basis. She was diligent and frugal with her estimate, which I promptly nearly doubled, knowing she was being overly optimistic. Luckily, that College savings account that started with a quarter a week when she was in first grade (see What Can Parents Teach Their Kids About Money to understand what I mean) was now just enough to cover that monthly living expenses budget we had established, for one academic year. The message was, this is your money, you decide how you spend it, but you only have enough money in your account to accommodate $X in monthly expenditures. If you overspend one month, figure out how to underspend the next month. Even though the first and last months of College are only partial months, I suggested she allow the full monthly budget for those months, because they would be more expensive months, between moving into and out of her dorm.
Careful spending means more money available for future expenses
My daughter promptly downloaded an app on her phone to help her track her expenses, and has been doing a great job of making sure she has enough for practical expenses like shampoo and snacks, but also to treat herself, whether it’s to go out to eat with her friends when they are celebrating a birthday or buying herself ‘a little something’, just for fun. We also felt it was important that she has access to the entire year’s living expenses savings account, so she could practice budgeting and fiscal constraint. Knock on wood, we haven’t received any “I’m running short on money” calls yet.
She also understands that if she is careful with that money, any money left over at the end of the academic year will be used for the following year, which means there is that much less money she has to earn/save for the next year. I also told her that if she went to College and discovered her expenses were much higher than her budget, we would reconsider her monthly budget, after some thorough discussion!
Exceptional Expenses
I made a list of things I considered important that she might not. For example, outside her monthly living expenses budget, I pay for her prescription medicine, laundry expenses and sunblock. I didn’t want her to not regularly wash her clothes and sheets because she didn’t want to spend money out of her monthly budget, and I didn’t want her skimping on sunblock or her medication, due to the cost. Occasionally my daughter will have an unexpected cost arise, and then we negotiate who should pay for it. Need some gear for your sport? Take that out of your books/school supplies savings account. Find you need a warmer pair of gloves? Maybe I’ll pay for that expense.
We also established that we would pay for flights home, because she goes to College out of the area. We miss her!
Here’s an item that is highly variable to the situation, as well as subject to you/your child’s opinion and financial situation. Do you send your kid off to College with a car? If your kid is closer than a plane ride away, you have to figure out how hard it will be for them to get home without a car. If they live on campus and aren’t going to be working off campus, you may decide a car is unnecessary. Even a car that is fully paid for is expensive, between insurance, gas, maintenance and parking. We decided that a Freshman without a car is more likely to take advantage of on-campus activities and otherwise be engaged. We also think experiencing an occasional inconvenience builds character. At times our daughter finds no car to be highly inconvenient and at those times, she’s not too happy with us. We will reassess the need for a car each academic year, as internships and other off-campus activities become prevalent. An important part of the car discussion is agreeing on who will pay for the related expenses. Again, a student with skin in the game may have different expectations than one who does not have to pay for the expense of having a car on campus. You will have to figure out your priorities.
Saving for Future Years
Our message to our daughter is that we hope she can get a good enough job over the summer to re-fund her books/supplies account and her monthly living expenses account for the following academic year. If she can maintain academic excellence in addition to her College sport, she has the option of taking a campus job during the school year to start saving for the next year.
This approach to funding future College years reinforces saving for the future, which is a great life skill. Knowing that this money is her money, and that the more she spends the more she needs to earn/save later for the following year, has made her very conscientious about her expenses. For example, she did a great job of finding deals when she bought text books, knowing that any money left in her books/school supplies account will go towards next year’s books/school supplies.
Budgeting Helps Make Students Financially Aware
During a visit to campus, I was pleased to hear my daughter talking meal-plans with a fellow College student. She had calculated how much she could spend on a daily basis to keep within the budget of her meal plan, and was working hard to stay within that budget. They were discussing another student, who had already used up their large meal plan for the semester only half way through the semester. My daughter immediately pointed out, “Do you see how much he’s spending on drinks at each meal? He spends more than half of my daily meal plan allotment on drinks, no wonder he is already over budget.” Yeah, baby, she is certainly more financially literate than some of her friends. Our hard work is paying off.
College is hard! Do something nice for a College student you know.
Sweetening the Pie
Whether it’s care packages with snacks, a Starbucks gift card and/or a $20 bill, or a campus visit that includes a small shopping spree, it’s nice to be able to do something extra for your child on occasion. I remember the rare unexpected check from my parents when I was in College and how excited it made me! It’s important to remember that College is hard and to respect the pressure College students experience. If you can’t afford to sweeten the pie, maybe a grandparent, aunt or uncle can do a little something now and then to cheer up a poor, hardworking College student.
Change in Plans
Lots of things could happen to disrupt our College budget plan. What if my daughter gets an amazing unpaid internship opportunity over the summer or moves off campus? Then we will have to re-assess who pays for what. Even if that happens, we have established a realistic budget. Otherwise, your kid may be off spending money indiscriminately and coming back to you ask for more money. If you haven’t set a budget and established expectations, its hard to decide how to handle this situation. Remember that while you want to be reasonable, it’s OK to say no to your kid. My daughter tells me she sees lots of students who clearly pay no attention to the amount of money they spend. I’m OK with her being envious, because I believe I am helping her learn some great life skills.
Another big caveat is that we will re-consider this entire plan if my daughter does not apply herself in College!
Preparing Your Child for Financial Independence
For families who are in the financial position to do lots of nice things for their kids (cars, electronics, and other luxuries), I think it’s important to ask yourself whether you are really helping your child. I didn’t grow up with lots of things, so as I started my post-College career, I believe I took more pleasure in the things I was able to buy myself. If you buy your kids only the best things, and a lot of them, don’t you think post parent-funded life might be greatly disappointing? You bought them a new Lexus, and when they go to replace it, it will probably hurt if they are struggling to afford a used Yugo. Or maybe there will be no such disappointment, because your kids will expect you to fill the gap between what they can afford and what they believe they must have to be happy for the rest of their lives. Maybe you consider that the circle of life, or you hope that if you give them the taste of the good life, they will be motivated to work hard so they can afford the good life on their own. Either way, that’s your decision.
We had our kids relatively late in life. We remind our kids that they were too young to remember when spare money was more of a scarcity in our lives, and that our comfortable life now is a reflection of years of hard work, careful budgeting and an emphasis on saving. Not everyone can be that fortunate, but we all try.
Remember that you are modeling financial literacy and success for your children and try hard to set a good example. Make sure you are making thoughtful money decisions and having these uncomfortable financial conversations with your student! By the way, something you might consider discussing now is Graduate School. As much as we understand a graduate degree can be helpful for long-term success, we told our daughters that grad school is their bill.
Share Your Experience
If you would like to suggest another way to help College Students budget their money, please share a comment.
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Maybe you are ahead of the game and are thinking about Colleges before you meet with a College Counselor, or you won’t be hiring a College Counselor or you/your parents want to visit some Colleges while on vacation the summer after Freshman year of High School. Where to begin? I believe one of the most overwhelming aspects of the College Application Process is the College Search. For more advice on the early College Search, see Setting Realistic Expectations with Limited Knowledge – The Early Search and Choosing Where to Apply Based On Your Financial Situation.
The second thing I find interesting is that a lot of States are failing at this task. This confirms my strong belief that financial awareness must be fully taught at home. Even a 6 year old can be taught something about saving money. Here are a few examples of how my husband and I have taught financial literacy at home:
