The following article is written by our partner in personal finance, Adam Carroll.

Cutting the Financial Cord (For Parents)

If you’re like most parents, the prospect of your child entering college prompts a number of questions: Are they ready for life on their own? Have we saved enough to help? What should we be doing to prepare them for college life?

Are they prepared?

According to the data gathered by Wakefield Research in their 2017 State of Student Debt survey commissioned by Thrivent Financial, when students were asked ‘"How confident, if at all, are you that you were/have been fully prepared on how to manage the cost of college?" the responses were as follows:

Less than 2 out of 10 students responded "very confident," and almost 1 in 10 responded "not at all confident." Most students feel somewhere in the middle with 45% saying they feel "somewhat confident" and only 30% feeling "not very confident."

A Different Quality of Life in College?

A follow-up question in the same survey suggests another challenge. When asked, "How strongly do you agree or disagree with the following statement - my quality of life in college should be the same as it was before college" the responses were as follows:

More than 6 in 10 students surveyed agree that their standard and quality of life in college should be the same as it was prior to college. Not a huge issue if the student was paying for the majority of their life prior to college, but a major challenge if the student perceives their parents' afforded lifestyle to be their own.

When it comes to cutting the cord financially, CLARITY is the key word.

One of my college roommates received a credit card from his parents when he entered college and was told to "use it sparingly." Within the first month, the card had been used to purchase groceries, pizzas, sweatshirts at the bookstore, and a number of items he deemed emergency purchases. He had no clue how much was being spent on the card and didn’t really seem to care. Neither did his parents. 

If this is how your household essentially operates when it comes to kids’ spending, what you can expect is a child that knows few boundaries for spending when they go to college. The college environment today is full of opportunities to spend lavishly on products and services for your dorm or apartment. Plenty of chances to spend money on trips, activities, and “necessities” abound on every campus.

Drawing a line in the sand about what is yours and what is theirs may help to define the responsibilities leading up to the day they head off to college. I would encourage you to do this several months (if not years) leading up to them leaving the house.

5 Steps to Take to Cut The Cord

There is a saying that "uncommunicated expectations are pre-planned resentments." From the sheer volume of stories I’ve heard from students, graduates and parents alike, this statement is absolutely true. To protect yourself from pre-planned resentments, consider doing these things:

  1. Put them on an allowance system of some kind. If your child is currently using one of your credit cards as an authorized user, take it back from them and set an allowance limit. By using cash and having to live within tangible boundaries, they’ll become more careful stewards of the money they have.
  2. Be very explicit about the fact that they have money and you have money. Your money is NOT their money. Set boundaries about what you’ll pay for and what they pay for and stick to them.
  3. Discuss what they will be paying for at school. For example, if they'll be responsible for paying their car insurance, are they paying it currently? When going out to eat with friends, do they pay for their own meals? If not, it’s time to start weaning them off economic support as they’ll be making those decisions on their own at college.
  4. Stop bailing them out. As hard as this may be, your children need to feel some financial limits and hardships. Challenges are real and if you continue to bail your kids out of financial hiccups, they won’t develop coping skills of their own.
  5. Help your student create a realistic budget of their expenses for college. Talk about how they’ll manage their bills, what they’ll do in case of shortages, and what they can count on from you. It doesn’t have to be perfect, just keep working at it until they understand the importance of having one and how they’ll use it on a monthly basis.

By cutting the financial cord before your child goes off to college, you’re preparing them for making some very real financial decisions in the months and years ahead. Those students that come to college armed with a financial plan, a budget, and a realistic set of expectations about the lifestyle they’ll live at school will leave with far less debt.

To begin the conversation, consider watching Broke, Busted & Disgusted with your student and ask questions to spark interesting dialogue.

Adam Carroll

Personal Finance Expert and Author


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