Finance: A Family Affair
- Role of Parents
- Setting a Good Example
- Impacts of Students Decisions
- Student Finances, Academics and Health
Role of Parents
While parents, schools, peers and the media all influence a young adult's consumer behavior, it is the parents who have the greatest amount of influence on a young person's credit card behavior (Mansfield & Pinto, 2003) and general financial behavior. "The family, particularly parents, are a very important part of the socialization of children for both factual and emotional uses of money (Danes, 1994, p. 129)."
Student's financial choices, like many other lifestyle patterns, are strongly influenced by the way their parents spend, save, or invest money.
Parent: "Probably the biggest lesson we give our kids is a tough love one: we won't bail them out. We give them a monthly allowance to cover the very basics; having extra money is up to them to earn it or use their savings. They learn quickly to budget, to not expect us to cover a shortfall. That's not to say we don't gift them with a few extra bucks now and then as a surprise, we just won't rescue them. Knowing we wouldn't cover him, our oldest learned while living in the resident hall to budget his money so there were no problems when he moved off campus and had to be able to budget his bigger expenses of rent and utilities. He's become so frugal, we sometimes joke we've created another problem!"
Every family's financial situation is different, and it's not a simple task to provide "one-size-fits-all" budget information. In fact, parents tell us that financial education begins at home, and that it is a family responsibility to teach students about money management. Moreover, parents say financial lessons should start in high school or before, but the discussions must continue throughout the college years with reminders about critical financial issues including:
- keeping track of how much you spend
- the pitfalls of excessive credit card debt
- the necessity of setting aside funds each year as a reserve for the next year's expenses, and
- the implications of graduating with significant college loans.
Parent: "If we had to do it all over, we would have started teaching our sons about money management sooner. I'm sure they would have been able to handle a checking account as well as a credit card sooner. I think it would be a good idea to have a class on money management starting in middle school. I know there are lots of subjects that need to be covered in school and time may be an issue, but money management could be one of the most important subjects to our children and to society."
Setting a Good Example
When students see their parents balancing the family checking account, discussing budgets, and managing money, students get the message that finances are important. Similarly, parents who talk with their student about when and why they choose to use credit cards pass along a valuable lesson. Too often, students don't think before pulling out a credit card to purchase something they may want but don't need.
Student: "I wish my parents would have told me to not keep my check card on me at all times."
Student: "Personally, my father always told me to write down even if I spent a penny and though he didn't know finance as we know now, he was very good at finance when I look back."
Ongoing lessons related to financial management are important. Students may not need to know the details of investing or long-term financial planning as college freshmen, but they should be prepared for higher finance by the time they graduate. Danes and Tahiro (1987) indicated that college students learn on an "as needed" basis related to finances. College students are most ready for information on insurance, credit cards, and overall financial management such as spending plans and taxes.
Parent: "When our U of M Study Abroad son returns this summer, he will hopefully again be working an internship that just happens to be at a bank here in Omaha. Last summer he worked in the mortgage/loan department. I'm not sure what he really learned about loans, etc., but we plan on talking to him about that aspect of money management this summer. We also have plans to explain about FICO scores and Credit Reports. Now that he has some credit built up, this summer we will encourage him to get his credit report and FICO score online so he can see what that is all about."
The Minnesota Attorney General's office provides some tips for college students to consider when they're thinking about getting a credit card.
The Impact of Students' Decisions
During the college years, students are moving into a new stage of independence, and they need to be developing personal management skills including decision-making, time management, and financial management. Nevertheless, parents need to be aware of their student's financial decisions because the choices a student makes can affect the family budget in several ways.
- Debt can have a negative effect on students grades. Excessive debt often leads to decisions to reduce study or class time in order to work more hours to pay off bills and accounts.
- If students rethink their academic commitment and drop a course a few weeks into the semester, they still will be charged for the class even though no credits will be earned.
- Students who go below full-time student status (12 credits) may no longer qualify for their parents' health insurance or auto insurance coverage.
- Students with fewer than eight credits may not be eligible to live in a residence hall. If students drop below half-time status, some loans will be due right away.
- Wages earned this year may reduce financial aid eligibility for next year. Students might work more hours to pay off debts, then discover that they will receive a reduced amount of grant or loan dollars the following year. Parents may then need to contribute more or take out a loan to cover the deficit.
- Students with excessive credit card debt or overdue payments run the risk of having a bad credit rating. Many parents are unwilling to let their student's credit rating follow him/her beyond the college years, and they feel obligated to pay off the debt.
- Poor credit ratings can influence hiring decisions in the future. Potential employers can request an investigative consumer report on applicants. (See Consumers Guide to Credit Reporting published by University Student Legal Services)
Student Finances, Academics and Health
Financial challenges can impact students’ academics and health. A 2007 University of Minnesota College Health Survey Report indicated that 29.1 percent believe high debt has affected their academic performance, and 12.8 percent have experienced stress as a result of excessive credit card debt. Students who carry a monthly balance on their credit card(s) have lower grade point averages than students who either do not have a credit card or carry no monthly balance.