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Friday, January 22, 2021
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The Fin.Lit Corner: Lesson 4 for ages 14-18

Mduduzi Luthuli

Ask parents about their biggest financial worries, and a majority will cite education costs. Unfortunately, a shocking number of parents shield their children from the reality of high tertiary education costs.

Millions of teens are walking around with the mistaken impression that their parents will fully fund whatever tertiary institution they choose regardless of the costs and logistics. A frank conversation in advance can clarify and simplify your family’s experience or expectations of applying and paying for tertiary education. This can even prevent financial or emotional crises.

In my fourth lesson about educating children about money, we focus on how to prepare them about the realities of the cost of tertiary education. We look at cost, affordability and options.

Only through understanding our options can we work towards meeting them. Discuss how much you can contribute to your child’s tertiary education each year.

Every parent should start the tertiary cost conversation by ninth grade the latest. Tackling the subject early and being honest about what your family can afford will help kids be realistic about where they may apply. It is also important to remember that there are many ways to finance tertiary education other than with your own money.

Together with your teenager research financial aid offers at different institutions. Find out how much of this financial aid is “free money” and how much of it is money that should be paid back. Free monies are grants, scholarships and some bursaries. Loans are considered “pay back” money because your child will be expected to pay back those loans.

Get your DUCKS in a Row

Before talking to the kids, calculate your own realistic household and savings budget, and agree on how much you can reasonably fund for each child.

It is crucial to make sure you’re in agreement before talking to your children as kids are very good at “divide and conquer” strategies. I recommend showing your teenager your household finances and demonstrating why the money for their tertiary education is limited. It is not a kindness to a child to let them live a fairy-tale. Your job as a parent is to prepare them to be an adult in the real world.

As a parent you need to take the time and have an honest and real conversation about student loan debt. Part of the discussion should include the impact on the family’s financial plans and possible plans and solutions to address the gap.

You must speak to your children about funding tertiary education. This is further complicated by choosing subject majors, financial exclusions as well as academic exclusions.

There is also the very real issue that your children might be the first in the family to attend university. Another major problem is the under estimation of current university fees. For parents who attended university, they find that current fees are much higher than when they studied. University fees at their time were highly subsidised and as such, we have a generation that knows how to qualify for tertiary but cannot give proper guidance about how to responsibly pay for higher education.

Globally, we have a growing generation buried in unprecedented debt. We don’t want it to be worse for the next generation and this is why these lessons are so important.

How should we talk about Tertiary Education costs?

Conversations should not be limited to one face-to-face meeting. Parents and teens should frequently talk about education savings, spending and potential debt.

Start thinking about which institutions your teen may want to attend and consider a range of cost for attendance. Sit down together with an education cost calculator and insert the amount you’ve saved or will save together. This will help you figure out how much student-loan debt you or your teen may have to realistically take to pay for tertiary education. This will help you all identify what type of tertiary institution your family can afford.

You may be able to factor in potential scholarship or grant money but be careful not to overestimate the amount your teen may receive. It is better not to factor scholarships or grant money into the equation so that your savings and tertiary education cost plans don’t dependent on them.

Your teen should treat applying for scholarships and grants like a part-time job. They should know to dedicate time and resources for this in order  to limit the amount of student loan debt that would be necessary and to alleviate other higher education costs.

A holistic approach to understanding tertiary might begin as early as primary school. This time would be an ideal period to go to local campuses for sporting events, camps, and other activities that might spark excitement in your youngster.

Most tertiary institutions have some fantastic facilities such as art galleries, science museums, and cultural events. Visiting them is a really great way to introduce students and get them in there as members of the community and let them see that such institutions have a special role in the community.

As your child approaches high school, parents can also start to gradually introduce the idea of a tertiary education by sharing their own past experiences, or those of a relative, neighbour, or friend.

The key message here is to let children expect that tertiary education is a possibility for them.

If your child is already well into high school and you haven’t begun to talk about tertiary options, don’t panic. Instead researching programs, realistically calibrating your financial options, and find faculties that will best meet your academic needs and long-term goals.

It is never too late to get started. It’s just a more pleasant process if you get started earlier.

Mduduzi Luthuli is an investment banker. He is CEO and founder of Luthuli Capital.

 

 

 

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