7 essential money lessons your children need to know before going to university

The day that you send your child or grandchild off to university can bring up mixed feelings. There’s pride and joy at their accomplishment, but also fear and worry as they venture out into the world on their own for the first time. For them, it’s a whole new exciting world of freedom to discover, and money lessons are definitely not going to be at the front of their mind!

However, you’ll be fully aware of the issue of their financial security. The National Student Money Survey has estimated that the individual cost of going to university for the average student is £57,000. On top of that eye-watering amount, do they have a solid grounding in financial common sense?

Providing your loved one with a few pieces of key advice ahead of university can help them to deal with any financial issues they may encounter. It can also help to relieve any money-related stress and allow them to better focus on their studies.

So, keep reading for the seven money lessons to share with your children before they head off this autumn.

1: Why students need to understand how their tuition and maintenance loans work

Your child or grandchild can normally apply for two key loans each academic year, one for tuition and another for general maintenance.

Tuition loans cover course fees and are paid directly to the university, so they aren’t something you or your child need to worry about in the short term.

Maintenance loans are meant to provide for the basic living expenses of students. In England, they are paid in three instalments across the academic year, typically at the start of each term.

For the 2022/23 academic year, students living away from home can receive maintenance loans of up to £9,706 (£12,667 in London). The exact figure is determined by means-testing that is largely based on parental income. The government website provides a full breakdown of how maintenance loans are assessed.

Additional support can be found through scholarships, grants, bursaries, and hardship funds. These usually depend on a student’s personal circumstances, and they can typically find out more information through their respective university.

Understanding how much they will be paid and when it will arrive is essential for budgeting for the academic year. Maintenance loans don’t stretch very far and will mostly cover rent and utilities.

It may be advisable to pay essential bills in lump sums at the start of each term, even if monthly payments are an option. This can reduce the risk of overspending on non-essential items and leaving key bills unpaid.

2. The pros and cons of overdrafts and credit cards

Student overdraft facilities and credit cards offer plenty of positives for students trying to make ends meet.

Student credit cards can be a useful tool in emergencies, but your child or grandchild may end up paying high interest rates and monthly fees that can be difficult to manage on a student budget.

Overdraft facilities, while often interest-free for students, can leave them with large debts. This could place extra financial pressure on them after graduation. Understanding the potential pitfalls associated with credit facilities can therefore be one of the most vital money lessons.

Talk to your child or grandchild about how interest on debt can accrue over time. It may also be instructive to explain how making only the minimum payment could mean it will take years to pay off debt.

Money Saving Expert shares a useful example. Assuming the minimum payment is 1% plus interest or £5, whichever is higher, it would take 27 years to pay off £3,000 of credit card debt. The total interest paid would add up to almost £4,000. This assumes no further spending is made on the credit card and that the interest rate is 17.9%.

3. Why they should be wary of buy now, pay later and other instalment-based options

According to Bloomberg, buy now, pay later (BNPL) apps such as Klarna are one of the fastest growing payment options among Generation Z. They should form a key part of any money lessons for children heading out on their own for the first time.

BNPL apps typically offer a range of alternatives to traditional purchases, such as:

• Buy now, pay 30 days later
• Pay in three instalments
• Longer-term payment plans for larger purchases.

BNPL can be highly beneficial in reducing short-term cashflow issues for students and could help spread the cost of big-ticket items such as a new laptop.

However, BNPL is still a largely unregulated market and doesn’t provide consumers with the same protection as other borrowing options. Additionally, it can be very easy to overspend and overcommit without meaning to.

Talk to your child or grandchild about how apps like Klarna run the risk of damaging your child’s credit score, and how they could encourage them to spend beyond their means.

4. The advantages of group plans, discounts, and other potential saving opportunities

Collective planning can be a vital part of a student’s financial arsenal. Communicating with housemates and reaching mutually beneficial agreements can spread some of the additional costs outside of rent and utilities.

So, encourage your child or grandchild to find ways of partnering with others to reduce their total expenses.

For example, making essential household purchases (toiletries, cleaning supplies, and food staples) from a communal pot can reduce the total cost. Students can even look at planning weekly meals together to reduce waste and make every penny count. They’re only human and are going to be easily tempted by takeaways every night, but they need to understand how the cost of this can add up!

Additionally, if you have a family phone plan for your household you might be able to help reduce any mobile phone charges, especially if devices need replacing in the future. Similarly, TV or music subscriptions can be collective agreements, whether that’s shared family streaming services or an agreement among housemates.

Students also have a wide range of discounts available to them, from supermarket savings to the 16–25 rail card. You can help your child or grandchild seek out these savings.

5. The importance of factoring in insurance

One of the more boring money lessons, but one that could make life immeasurably easier!

Students should carefully consider what kind of insurance they’ll need while they are away from home. It is advisable for all students to look at contents insurance.

A study by Endsleigh Insurance estimates that students travel to university with more than £2,000 worth of hi-tech gadgets. Contents insurance can therefore provide a valuable safety net in the event of theft or damage.

You may be able to add this cover to your own home insurance policy. Teaching your child or grandchild about the benefits of insurance can be a valuable money lesson, so make sure you chat through their needs and whether they have the right cover in place.

6. The benefits of a part-time job

Ultimately, there may come a point where your child or grandchild needs to make up an income shortfall. It’s brilliant if you’re financially able to assist your child. This can enable them to focus completely on their studies.

However, for many households, students will need part-time jobs to make up the difference. Having a conversation with your loved ones about potential job opportunities, before they head off to university, may help them make an informed decision.

Sharing valuable hindsight from your own life experiences and pointing them in the direction of useful information can help them select the most appropriate part-time job for their studies and goals.

7. How to carefully plan and budget

Finally, unforeseen emergencies can hit at any time. As a relative, you’ll feel the urge to bail your child out if this occurs, but it could be smarter to advise them to keep a “rainy day” fund set aside. An emergency savings fund is a key part of our financial planning process, and is a great example to relay to your children.

Work out what their outgoings are likely to be every week or month and create a spreadsheet to help them keep on top of their expenses. Learning to budget will be one of the key money lessons they will learn while at university.

Get in touch

If you have a child or grandchild heading off to university and you’d like advice on how to manage the costs, we can help. Whether you want to cover some of the essential costs or start saving for younger children, putting a plan in place can give you peace of mind. Get in touch with us today to find out more.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.