What's best for families facing the cost of university?
Modern parents are in a quandary when it comes to finances for their university-aged children. Should they give budding academics a lump sum, dole out an essentials-only allowance, or spring for spending money?
Then there's the matter of bailouts from the bank of mom and dad - at what point do "student financial emergencies" become suspect?
Alex Matjanec, co-founder of New York-based mybanktracker.com, says choosing among these optionsis less important than having a discussion about family finances.
"Parents need to be transparent about how much this education is putting a strain on family finances," Mr. Matjanec advises. "This avoids questions like 'my friend gets $1,000 a month, why don't I?' "
University life is more expensive and comes with more social pressures than in generations past. Anxious moms and dads struggle to provide support while still fostering financial independence. But there are helpful tips for parents of fledgling budgeters, and frank communication is key.
First off, handing out lump sums, according to Tom Hamza, president of the Toronto-based Investor Education Fund, is "always a bad idea for someone who's never controlled money. Ten thousand seems like more than it is, but $500 increments make for tighter control."
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Michelle Duke, head of client strategies at RBC, says her best advice to families is a budget.
"Look at what you have, look at what you need, then decide how to fill in any gaps."
This often amounts to summer jobs, scholarships or parent loans. It's a big mistake to leave these financial gaps unaccounted for.
But even foresight, the best financial strategy of all, can be unpredictable.
"It's best to start when little Johnny is 1," Ms. Duke says. "But I don't think parents thought 17 or 18 years ago that education costs would reach what they have today" - about $80,000 for an undergraduate education if the student lives away from home, by her estimate.
Mr. Hamza says parents are often shocked at this, or "at $1,500 for books, for example." And without a budget, they really won't know.
It helps if you're a parent who's already in the business of finance.
Janet Peddigrew, vice-president with BMO in St. John's, has made certain her 17-year-old, university-bound son takes advantage of every no-fee student account and credit card available to him. Her credit rating could also be affected by his $800 card limit. But they've crunched the numbers together, which often amounts to simple addition.
"Three dollars a day for coffee is over $1,000 a year," Ms. Peddigrew notes. Her son now keeps it in mind, too.
Generally, Mr. Matjanec advises against shared credit cards, and "literally putting your credit in your child's hands."
An alternative, he suggests, is a joint bank account. Parents planning to make deposits will avoid transfer fees, and monthly statements will go to both names on the account - a way to track spending habits.
Map out what's needed for the year, even if your future scholar isn't keen on thinking past frosh week.
Every situation has different hazards. Students living on campus tend not to budget for transportation, for instance, thinking: "Hey, I live on campus, no commuting!" Mr. Hamza explains. Not exactly. "You will take a taxi home from the pub," he says, and that should be accounted for.
Students living off campus don't have it easy, either.
"Think of setting up your own kitchen for the first time," sans parents, Mr. Hamza jokes. "Who thinks to buy ketchup? No one. It just lives in the fridge."
Ketchup is just a metaphor. Those costs can add up to money mistakes of all kinds, such as buying a computer without factoring in the costs of paper and ink - which is understandable to an extent, Mr. Hamza says.
"Everyone doing something for the first time is entitled to make a mistake. But after three or four consecutive times, parents should start to question what is truth and what is fiction" in children's tales of why funds ran out.
Mr. Matjanec says role plays about worst-case-scenarios should happen before disaster strikes: cellphone bills missed for the entire year, for example, or an entertainment budget blown by mid-September.
Discuss consequences for irresponsible behaviour: Go over everything from your child's future credit rating to more immediate family discipline.
Family discipline and bank loans will meet again, he says, especially if you want to be really strict.
"Explain that one day they'll need a co-signer on a mortgage loan. And you won't be that co-signer."