Student loan debt in America currently stands at more than $1.52 trillion dollars. That staggering number, combined with the fact that college tuition continues to rise almost 2% each year, is enough to frighten any potential college student and their parents as they save up for a higher education.
According to J.P. Morgan Asset Management’s most recent College Planning Essentials Guide, 59% of parents are not confident about meeting college costs.
“A few reasons [for the lack of confidence] are not having a plan, starting too late and underestimating cost,” says Katie LeGardeur, managing director and market leader for JPMorgan Chase in Louisiana. “Working with a trusted financial planner is a good step in creating a plan that works for your family and creates confidence for the journey ahead.”
Most people realize that saving needs to start early, whether that be a 529 Plan (Congress initiated tax-incentivized savings programs for college tuition) or putting a litte bit away each month.
Louisiana also has its own innovative START Saving Program, which allows parents, grandparents and others to work together to establish an education savings account. In addition to deposits made by account owners, the state allocates state matching grant dollars—ranging from 2% to 14% — to eligible accounts.
No matter the financial situation of the parents, all young people entering college need to do so with some knowledge of the financial pitfalls that can come with their newfound freedom.
“Make sure to have a discussion about credit cards and how they work, and make sure they know it’s not just free money,” says John J. Zollinger IV, New Orleans market president at Home Bank. “If you don’t have the money today, you are borrowing from tomorrow’s earnings. When it’s put that way, I think people will think about it differently.”
Start in High School
LeGardeur says it’s important to get young people financially prepared for life after high school by helping them develop smart habits that will help them make the most of their money for the rest of their lives.
“To help your child learn to stand on their own feet and gain important money-management skills, parents should strongly encourage them to get a job so they learn the value of money, how to manage what they earn with confidence and [to see] how far their earnings will really go,” she says. “They should also help them think about their first bank account and encourage them to save, starting at an early age.”
LeGardeur also recommends parents help children build their own credit profile.
“Consider adding your student as an authorized user of a family credit card and help them fill out a card application when they turn 18,” she says. “They will likely need a co-signer for approval. Be clear about what expenses they will be responsible for and monitor the card usage online.”
Since young people are usually very adept with technology, LeGardeur says getting them to digitize their finances is also a good step.
“Sign up for text alerts to notify them when their account balances are low, when withdrawals are made, or when spending in a certain category goes past their budget,” she says. “Alerts will teach them to avoid fees and also protect against fraud.”
“Being honest about finances and continuing a life-long conversation about how money works will set your child up for their introduction to the ‘real world,’” she says. “It’s important for children to understand the differences between needs and wants and what costs are associated with them.”
Make a Plan
Paul London, office manager at IBERIABANK’s Mid-City Canal Office, recommends that families have a financial plan, and that both parents and students take care not to overextend themselves.
“Each family’s situation will be different,” he says. “Support might mean providing food, housing, or rides for your student, or it could be a monetary allowance. There are lots of ways to help your child. Be realistic, though—whatever type of support you decide on will have a financial impact on your household, and a well-thought-out plan should be in place.
“A good way to make sure you’re ready to help support your child is to review your family budget and see where you either have or could have a surplus,” he says. “You’ll want to ensure your finances are stable enough to maintain your necessities before adding another monthly cost.”
Zollinger says budget discussions should include the concept of an allowance for the student and a plan to help them live within their means.
“They need to think about what’s a need as opposed to what’s a want, and where they can make changes and divert from the budget and the fixed costs where they can’t,” he says. “And just having a budget written down doesn’t means it’s going to work. A budget takes time to get used to and there will be challenges with keeping to it along the way.”
Don’t Be Afraid to Ask for Help
Sometimes students hearing advice from an outside trusted advisor — like a banker or financial planner — can help affirm the message of financial responsibility. Professionals can also help parents perfect their financial plan.
“Talk with [your financial planner] about your plan to determine its viability,” London says. “Make sure they understand your priorities. Be open to recommendations and make adjustments as you see fit.”
