University finances: five tips to keep your children out of the red
Ikea shop done and posters blue tacked to walls, this year’s freshers are settling into student life. But with university fees now at a whopping £9,000 a year and other living costs on the up, this freedom comes with a lot of responsibility.
Here are some top tips to help students stay out of the red during university, and graduate with the know-how to manage their finances in the real world.
- Understanding overdrafts
As freshers week looms, banks will encourage wide eyed students to take on an interest-free overdraft. While overdrafts can be a useful buffer when dealing with the occasional unexpected cost, many students end up treating this like “free money”, which it definitely isn’t. When graduation comes around, payback must commence quickly, before interest rates loom.
Top tip: Once your child has graduated, sit down with them to work out how they can repay their overdraft quickly so they don’t incur any unintended extra costs.
- Study the small print
From tenancy agreements to phone contracts, students see a lot of small print. As your child moves off into adulthood, you need to make sure they understand the importance of reading this before signing. It might seem basic but this is a time when they will be building up quite a portfolio of contracts. The devil is always in the detail with these things so setting aside 20 minutes to read through the documentation properly really can make all the difference.
Top tip: Make sure your child is not the named payee on all of the house’s utility bills, as they might end up being liable for debts that arise from other housemates.
- Steer clear of ostrich syndrome
Often, students won’t own up when they have made financial mistakes, and instead of talking about it, they bury their heads in the sand. Without guidance to help them during this time of panic, it is easy to lose perspective and look for a seemingly easy way out – such as payday loans. This isn’t an uncommon problem – last year alone, over 46,000 students took out a payday loan, which they will no doubt have found difficult to pay back. It is crucial that if something goes wrong, you can work out a feasible financial solution together.
Top tip: Sit down with your kids as early as possible in their childhood to discuss finances so that they feel they can – and are used to – talking about their money worries with you.
- Better budgeting
Budgeting can be boring, we all know that. But it is an incredibly important skill, especially while at university. This is a time when your child will suddenly have a significant amount of money coming into their bank account on a termly basis, which they will have to reconcile against monthly and weekly outgoings, at the same time as being pressured to go out regularly and spend money. Have a realistic conversation about how much money they will need to budget effectively. Encourage them to set up a spreadsheet of their finances and if they are struggling with money, sit down with them again to work out a solution. If necessary, advise them to cut down on expenses such as an unused gym membership or take up a part time job.
Top tip: Take your child to do a big food shop of all the staples (loo roll, washing up liquid, pasta etc.) when you drop them off each term so they have to do less runs to the shops on a daily basis (when they will no doubt end up buying and spending more!).
- Taking time out
If a gap year is on the cards then use this as an opportunity to teach them about the value of hard work. A year off doesn’t automatically mean a holiday on the ‘Bank of Mum and Dad’ so why not suggest they work for 60% of the year and travel for the other 40%? It is a great way of getting them work ready and appreciating the value of money.
Top tip: Encourage your child to fund their own gap year and set up a bank account at home which they can’t touch while traveling.
Sarah Lord is managing director of Killik Chartered Financial Planners