Thousands of kids have headed to university this week, equipped for the school year. Their parents -- maybe you're one of them -- made sure they have sheets and pillows, a phone so they can keep in touch and the right kinds of furniture for their dorm rooms.
But how well equipped are they financially?
I’d suggest that during these early weeks in the school year, you take a few minutes to tell your kids you trust them while also outlining the biggest financial mistakes students make and how to avoid them:
1. Falling into credit card debt.
Post-secondary students who are 18 can legally apply for and get their own credit cards. Need I say more? This is the single biggest financial trap that college students can fall into. More than half of Canadians had credit card debt as of December 2013, according to Creditcards.com.
Have a conversation with your kid where you outline clear spending limits based on your budget -- and theirs -- for each semester. Then, either add your son or daughter to your credit card, or open a card on a joint account in both of your names. Trust, but verify. For more on this, here's a great column from Lynnette Kahlfani-Cox.
It's easy to overspend in an era when a lot of things that used to seem like luxuries -- like the latest iPhone -- now seem like necessities. Sit down and set up a budget. Even if you're paying for the entire cost of university or college, make sure your son or daughter understands what each line item costs -- from tuition, to health care, to fees and books. And your student is probably better than you are with budgeting apps like Mint or Slice, so suggest one.
3. Not Saving.
Now's a great time to start developing good financial habits. Goals-based savings works. If your kid wants a spring break trip, help him or her set up an account and talk about how much goes into it.
4. Missing the opportunity to learn.
Financial planning still isn't part of the required curriculum at most schools, though I think it ought to be. But many post-secondary institutions offer electives that allow students to understand the basics of finance, from mortgages to interest to -- my favourite -- investing. Suggest your son or daughter take one and then engage with them about what they are learning.
5. Lending too much money to friends (or strangers).
Post-secondary students with money in their pockets are oft to be overgenerous with it. They can help out friends, but they need to learn to recognize a situation in which they're being taken advantage of. This is a conversation that might start out with you sharing a time that you felt rooked: if you open the line of communication, you'll increase the chances your kids will come to you when they're in a jam.
6. Asking for handouts.
Even with all the good work you'll do and all the good intentions in the world, your student still may come to you for a bailout. Set your boundaries early and make it clear when you will and won't be a bailout bank.
For a final mistake that post-secondary students make, visit the Nest Wealth blog.