Here are some ways college students can go wrong with their finances and how parents can prevent them from doing so.
As teenagers leave school and enter college, the newfound freedom and confidence need to be tempered with restraint and discipline that only parents can provide. This is also true of financial habits and decisions. Increased social interaction and entertainment, independent handling of the day-to-day expenses, and moving to new cities for education or planning for higher studies in India or abroad spur the need for greater flexibility in managing their own funds and decision-making. In this process, there is also the risk of taking impulsive financial decisions, adopting wrong spending habits or following practices that can result in financial chaos later on. Here are some financial mistakes children can make and how parents can guide them through this precarious period.
- Excessive spending on wants, no saving
Socialising with friends and peer pressure can easily psyche a youngster into excessive spending on wants rather than focusing on needs. This results in demands for higher allowance and requests for supplementing the exhausted pocket money. The parents will need to draw a clear line on the reasonable amount that the child can spend based on an estimate of his monthly spending. Another habit that the parents can help instil in the youngster is the need to save a small amount from the allowance each month, which they can invest for the youngster's future use. - Using a credit card
A request that most parents are likely to get from their college-goer child is for a credit card to enable easy spending. However, this should be a strict no-no for the child at this age as it can lead to uncontrolled spending and piling debt has given the high-interest rates that credit cards charge. It is best for a parent to explain the working and costs associated with a credit card, and provide a debit card, prepaid card, or a wallet with a pre-defined limit. This will not only help discipline the spending but also be easier for the parent to monitor the child's spending patterns. - Taking a big education loan
It is likely that peer pressure influences your child into wanting to apply for undergraduate or postgraduate courses abroad with the help of a big education loan. If the course does not result in a job that can help repay the loan in the stipulated period, it will end up as a liability for the parents. Instead, it may be a better idea for the parents to discuss the job potential of the course before rushing to take an unwieldy loan on the teenager's insistence. - No budgeting
If your child has gone to a different city for his undergraduate studies and is staying independently outside the college campus, he will have to manage his finances and run the household on his own. If he cannot manage the expenses in the amount provided by the parents, he is likely to run short of funds and seek help before the month's end. It is best that the child is taught budgeting long before he leaves the house so that he can balance the allowance with his expenses and save some amount as well. - The lure of quick money
As cryptocurrencies and NFTs promise high returns in a short period, it is easy for youngsters to want to cash in on these. You will need to explain the high-risk and non-sustainable nature of these options to avoid misguided investment.