This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Managing money is often a challenge for young people at university. Before age 18, a child’s financial needs are typically more limited due to living at home. Once they reach their halls of residence or student house, however, they suddenly need to contend with bills, cooking and budgeting for social spending. The lack of familiarity leads to a ballooning of expenses in the first term, with 10% blowing over £2,700 in the first two weeks.
Given that, on average, students receive a Maintenance Loan of £470 per month, it is vital that prospective students are brought up with good money habits before starting their course. They will also benefit from knowing what their student debt might look like when they finish university and how it may affect their financial plan when starting a career – and perhaps also a family.
In this article, our financial planners suggest ways to discuss these important money matters with your children. We hope this is useful and please get in touch if you’d like to discuss your own financial plan with us over a free, no-commitment consultation.
Discuss living costs with your children
UK schools are certainly getting better at teaching children how to budget. However, 40% of children and young people still say they have received no formal financial education before the age of 18. Parents can play a key role in helping their children prepare in this regard.
Often, it can help to sit down with your child and discuss what a monthly budget might look like. The average student spent £810 a month at university in 2021, which is nearly double what he or she may receive as a monthly Maintenance Loan. However, things are likely to be even more difficult in 2022-23 with the cost of living skyrocketing. Inflation has risen to 10.1% and could exceed 13% later in the year, but the Maintenance Loan is currently not being raised in line with this rise. Potentially, this could leave some students £1,000 more out of pocket.
Crafting a budget together could help your son or daughter plan to spend less than £810 per month. Yet this could prove difficult and unrealistic. Part of the university is to have fun, discover yourself and make new friends. All of this involves spending money.
Instead, you could suggest ideas for your child to get a part-time job whilst studying to boost their income during term time (or a temporary full-time job during the holidays). You may also be planning to contribute to their bank account each month. Here, it might help to find a sensitive way to emphasise that, whilst you will support your child financially, you cannot be expected to “bail them out” if they are irresponsible and blow their budget.
Discuss the longer term
Your child is likely excited about university and not really thinking about life afterwards – career and possibly marriage, saving for a house and having children. Yet the choices they make about university will have a big impact on these later-life goals.
The average forecast debt for students who started their course in 2021-22 is £45,800. Some will amass more than £189,700. This is then gradually repaid when your child starts paid work after university. The monthly repayments could eat into his/her ability to save towards other key goals – such as a mortgage deposit. Those earning over £2,274 a month under the threshold for Plan 2, for instance, will pay back 9% of the amount they earn.
For example, those who earn £2,400 a month would repay £11 for that month (9% of £126). Yet those earning £4,000 a month (£48,000 per year) could end up repaying £155.34 per month. In this case, your child would be losing £1,864.08 per year whilst on this salary.
Bear in mind that the interest rate on your child’s student loan is likely to vary over their career (in September 2022, it is currently capped at 6.3%). Sitting down with your child and doing these kinds of calculations can help focus minds and bring a greater sense of responsibility to your child’s university experience.
Here, the discussion can be quite sensitive. Many parents (and young people) believe that it, in today’s world of higher student fees, higher education is not just about having fun and learning an interesting course. It should also be an investment in his/her future. Just like any investment, it ideally should provide a “return”. If this is your outlook, then you will need to be careful about how far you push them towards doing a “worthwhile” course instead of a course they want.
Others believe that university is a kind of “right of passage” to adulthood in the modern world, and their children should simply do whatever subject they want to. In this case, we still believe it is helpful to talk about your child’s potential finances after university so they can make a fully informed decision about their chosen course and university.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
