How to Give Your Child Skin in the Game with College Financial Planning

Karin McKieBy Karin McKieBy Savingforcollege.com

Don’t want to talk to your kids about money? Think you need to shield them from overwhelming financial decisions? You might be missing an opportunity to teach fiscal skills using one of the most substantial and impactful purchases in both of your lives: a college education. College is a transition from a sheltered existence to the real world.

Financial Literacy is Part of a “Guide for Grown-ups”

When students actively participate in college financing strategies, they learn valuable lessons in long-term planning and monetary decisions. College-bound children can choose the best funding options and avoid pitfalls like over-borrowing. Like memorizing your Social Security Number, learning how to manage debt is an important part of growing up.

The First Step is FAFSA

Besides getting a driver’s license, filing the Free Application for Federal Student Aid (FAFSA) is likely a child’s first exposure to government bureaucracy. During this process, the child will learn about the importance of deadlines, attention to detail and accuracy.

When completing the FAFSA and engaging in college financial planning, provide enough information for adult-level discussions without undue financial pressure on the child, for whom academics should be paramount.

Discuss family resources for paying for college, such as money in college savings plans, contributions from income, financial aid, education tax benefits and affordable debt, when evaluating which colleges you can afford. You don’t need to disclose your salary and your net worth.

Yet, allowing the student to take ownership of the process will give them more skin in the game. They will be more motivated to get good grades, more likely to graduate on time and less likely to accumulate too much debt.


Know Your Options: Scholarships, Private Loans, Tax Benefits

Beyond federal funding, your children should explore other options for paying for college.

  • Scholarships are a form of gift aid, which does not need to be earned through work or repaid. But, they do need to be earned through getting good grades and investing hard work to write essays and complete scholarship applications.
  • Private student loans are also available, but are based on credit and not financial need. If a family needs to borrow from private or parent loans, it may be a sign that they are over-borrowing. The student is less likely to take on too much student loan debt if they limit themselves to just federal student loans.
  • Education tax benefits, such as the American Opportunity Tax Credit and the Student Loan Interest Deduction, can be claimed on the student’s or parents’ federal income tax returns.

Attaining the Proper Work/Study Balance

By the time they apply for college, teenagers have likely earned, and hopefully saved, wages from part-time and summer jobs like babysitting and lawn mowing. Perhaps they’ve accrued allowance money from household chores or started bank accounts with the proceeds of holiday and birthday presents.

Besides instilling a healthy work ethic, earning and saving will teach students the value of money and personal responsibility.

Students should avoid working more than a dozen hours a week during the academic year, as this can cause a decrease in academic performance and graduation rates. Working 12 or fewer hours a week will force them to learn time management skills.


Return on Investment

Many students and families are lured by the reputations of Ivy League and pricey private institutions. But does the prestige match the price tag? Weigh whether the job prospects justify the debt load.

Of course, students shouldn’t neglect the “free” contributions they can make to their educational journeys as well, like studying hard, maintaining good grades and volunteering at college or in the community.

A Financial Education

Many young people learn by doing, so take the opportunity of funding a college education to teach your kids about blending a realistic budget with aspirational goals.

Talk frankly about what you can afford, what options are available in your income bracket, and how to complete the steps, and paperwork, necessary to achieve those goals.

Helping your child plan to achieve their dreams will teach them a lesson worth learning. It will keep money in the bank while putting skin in the game.

In order to fully buy into a commitment, your student first must have ownership.


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