An estimated 21 million students left for college last fall, and the numbers are on the rise. On their own for the first time, many struggle with their newfound responsibilities, including handling their money.
According to a survey from financial education company EverFi and technology and financial services company HigherOne, college students are less confident in their ability to manage money than any other aspect of student life. Most students graduate high school without financial literacy training (just a handful of states require a course for graduation), and according to a recent international financial literacy assessment, one in six U.S. students doesn’t meet baseline financial literacy standards.
“College is the beginning of a transition from a sheltered existence to the real world,” said Mark Kantrowitz, senior vice president and publisher of Edvisors.com, a website about planning and paying for college. Talking with teens about money before they leave for university can have a substantial effect on their financial well-being for decades.
Here are six key areas to discuss with your children before they get to campus.
1. How to Manage Money. Parents should teach their children about money from a young age.
“It starts when they’re young,” said Linda Bradley, assistant professor at California State University, Northridge, who teaches the course Individual and Family Money Management. Make sure children get to practice by managing a savings account, budgeting their money and saving for their own wants, Bradley advised.
Terry Harris of Kennett Square, Pa., started teaching his three daughters—now ages 18, 20 and 22—about money when they were six years old. “Before any of them were old enough to talk about college, we started talking with them about the three S’s: save, share and spend,” he said.
Today, his two college-age children manage their own checking accounts, finance their own personal spending and pay a portion of their tuition.
“We have the means to pay their entire tuition, but we felt it necessary that they have flesh in the game,” he said.
2. How to Handle Credit. Thanks to the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, students without an independent income no longer qualify for a credit card without a co-signer. But many students work part time, leaving them open to credit opportunities before they’ve been educated on how to properly manage them.
As his children left for college, Harris armed each with an authorized-user card linked to one of his credit cards. To help them learn about credit, he makes sure his daughters are responsible for managing those accounts. “Whatever they put on their credit card, we expect them to pay that amount by the end of the grace period,” he said. “They have to have enough money in their checking accounts to cover whatever they charged.”
3. The Impact of Student Loans. Seven out of ten students graduate with student debt, with an average balance of $28,400 per borrower, according to the Institute for College Access & Success. Many undergraduates don’t know how to manage that debt, Bradley said.
Teens often don’t understand how their student-loan burden will affect their quality of life post-college. But students can think ahead about how they’ll pay back their loans and avoid borrowing too much.
“Total student loan debt at graduation should be less than that student’s expected annual starting salary,” said Kantrowitz. If students follow this guideline, repaying their debt within 10 years should be possible.
For parents, he suggests total debt borrowed for all children collectively should be less than their current annual income, assuming they have 10 or more years until retirement. If they have five years until retirement, they should borrow half that amount.
4. The Real Net Price of Their Chosen College. A college sticker price can vary dramatically from the amount a student will actually pay.
“The net price is what is left over after you subtract the grants, scholarships and other gift aid from the total cost of attendance, which includes tuition, fees, books, supplies, room and board and transportation,” Kantrowitz said.
All colleges are required to offer a net price calculator on their websites, he added. The College Board also offers one here. Parents can work with their children while they’re researching colleges to help them understand what they can actually expect to pay.
5. How to Search for Scholarships. In the 2011-12 academic year, about one of eight students from bachelor degree programs won scholarships, receiving, on average, $3,400 a year, according to the National Center for Education Statistics.
Among available scholarships, the typical high school senior will qualify for between 50 and 100, said Kantrowitz. “You need to apply to every scholarship for which you’re eligible. The kids who win a gazillion dollars have more rejections than they have wins.”
Students (with the help of their parents) can start applying for scholarships as early as age five, and awarded funds are held in a separate account until the child attends college (check out this list of scholarship options for children under age 13).
Private scholarships are awarded for athletics and academics but also for unexpected accomplishments such as being tall or singing the national anthem “with sincerity.” There are many free scholarship services available online, including fastweb.com, studentscholarshipsearch.com and Peterson’s.
6. Reduce Debt by Working. College students can earn up to $6,400 in the 2015-16 school year before their earnings compromise their federal and state need-based aid packages. But federal work-study earnings are exempt from that cap, so a child can help offset the cost of his or her education while still in school.
For parents prepping their teens for the financial challenges of living on campus, it’s important to remember the cost of college isn’t solely the parents’ responsibility. “Paying for college is a partnership between the student and the parent,” said Kantrowitz, “and there are things that the student can do to contribute.”
Written by Alaina Tweddale. Originally published as part of Northwestern Mutual Voice on Forbes.com.