I don't have kids, but I can tell you it wasn't too long ago that I was looking at colleges trying to decide where I should go. I'm now like many 20-somethings that are dealing with paying off student loan debt. A lot has changed since I was a Senior in high school when I was thinking about where I would get my degree in English (I ended up with Business...but English sounded more fun at the time). I can tell you right now I couldn't have answered these questions at that age:
1. About how much does my parent's house cost?
2. About how much does a first year teacher/lawyer/doctor/accountant make?
3. How does interest work?
4. How much will the college I'm looking at cost?
I believe every teen should know a ball-park figure for these questions. Why? It gives them just the slightest idea for how they should look at income vs debt. It is a very basic concept of cost of living. I'm not saying they should know these exact amounts, but I didn't know if a house in our neighborhood cost $25,000 or $500,000 at that age.
Why do I think that is important? Throwing out numbers about college costing $14,000 a year vs a college that costs $50,000 a year means very little if you don't understand what $1,000 can do. At that time, I knew that $300 could buy me a canon digital camera in high school, but I didn't know when it came down to the "real" stuff what it actually meant.
Even in my Junior year of college, I remember a professor that took our class to Starbucks to have a talk with us about how life will work outside of college. He asked us what we thought we would make...and none of us could answer. We had no idea. We didn't know ballpark salaries for what you make when you graduate as business majors, and we were getting closer to being shoved out in the real world. He assigned us a project of creating a budget for our first year out of school. We found the average starting salaries of the careers we intended to go into, added up our debt, found a house/apartment that we intended to live in, and added in a bunch of other living expenses. He made us contribute to our savings and IRA too in our pretend future budget. I remember having to quiz my older sister, who was then living on her own, how much things cost (utilities, rent, food) because I hadn't a clue. This was an eye opening activity for me. I was a junior in COLLEGE at the time, not high school....and I was a business major! Thinking about that now is shocking to me, how little I knew about what my life would be like in a year, and yet I was making huge financial decisions right then that would affect me for MANY years to come.
I think every parent should sit down with their kids and talk about debt. My parents talked to us about credit card debt long before looking at colleges. Credit cards are a huge danger as well. However, I think the most important thing affecting my peers is student loans, not credit cards (my personal, unprofessional opinion).
Here is what I think every parent should discuss:
1. Cost of living. Talk about what the average college graduate makes in varying career choices. Talk about what an average home costs in your neighborhood. Allow them to get an understanding of how cost of living works. If a house in your neighborhood costs $250,000 and the average business major will start at $40,000...let them think about what that means. Give them some perspective. You may think they know this, but as someone who was semi aware of these things...I didn't.
2. Cost of education. Explain tuition, books, and all the other expenses that will go into your next 2-4 years in college. Even if you, as the parent, are planning to pay for it...make sure they understand. Explain opportunity cost, that is the money you could be making (rather than spending) in those 4 years of school.
3. Explore Options. I'm a firm believer that college is not always the answer. I think that is hard for people my parent's generation to understand. If they went to college, they may have seen that they had a huge leg up from their peers. If they didn't they may feel they want their child to have opportunities that they didn't. If you are one of those parents, please know that things have changed. If your child doesn't know what he wants to do, don't blindly tell him college is the answer. Maybe talk to him/her about taking a year or two off, explore different career paths and find your passion in life. Talk about trade school, apprenticeships, taking a few community college classes, or simply diving straight into the job market. I have more friends that have that paper showing off their college degree...and they are currently working side-by-side with people who never spent the thousands of dollars to obtain that paper, are being paid the same (or often less since they are now 4 years behind those that went straight into the working world) and still can't find anything in their major of study. A number of friends have even decided they don't even like the degree they decided on, and never intend to use it. You can argue with me that they will still be better off having a degree in the long run, but I disagree that it is hands-down for every person. College isn't the only option. And a job isn't just waiting for you out there to make going to college financially the best option for everyone.
4. Allow them to understand interest. This is the killer. Kevin and I have a loan that just now is down to the amount that he took out in 2005. We've paid thousands of dollars on this loan, it has accrued interest for years...and we still owe the same amount. Allow your student to see what a difference it can make if they decide only to take out subsidized loans, and instead pay for the rest of school by working in the summers and weekends. (I have a post here about why you should work while in school) Make sure they know that borrowing money isn't free! Show them how much they will pay in the long run if they borrow $20,000 today at a rate of 6% and don't pay it off for 10 years. I'm not saying scare them, you want to EDUCATE them.
5. Make sure they understand everything they are signing. When you are going through the process of helping your student obtain student loans make sure to walk them through the process. I trust my dad. He placed things in front of me all the time to sign, and I blindly signed it. Granted, he probably made every effort to explain things to me, but I'm sure I just asked him where to sign and walked away. Thankfully, that never got me in trouble! Make sure either if you personally are taking out loans for your kids (which I would highly suggest against for many reasons) or if you are helping your kids take out a loan...that they know what they are doing! They need to understand what is going on! You don't want them to be surprised 6 months after graduation when they have $45,000 in loans when they thought they only had the $10,000 they took out before freshman year.
Those are just the bare minimum things I think you should discuss with your teenagers before looking at post-high school opportunities. These decisions will be affecting the rest of their lives. I went to a private school for undergrad, and a state school for law school. Its no coincidence that I decided to go to the much cheaper state school when I found out I'd be paying for 100% of my law school degree. I'm not saying that a private, more expensive, school doesn't have great things to offer...but you need to evaluate what those are and what is best for you and your teenager. Maybe an education at a religious school is important, maybe the more expensive school has more to offer or better job opportunities, or possibly the location of the school is that important to your teen. Its all unique to each individual.
I know teenagers, and I know I was a real treat at that age :) Find a tactful way to bring this up. I'm not a parent, so I haven't read the handbook yet on all those tricky little ways you all get us to do what you want. I don't care how you do it...but I truly believe it is in your best interest to talk to your teen seriously about these huge financial decisions they are making.
I had such a wonderful support system through my 7 years of higher education! They taught me so much, and I wouldn't have made it without them!
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