Teaching your children how to navigate their finances will build healthy spending and saving habits and reduce the chances of your child getting into debt. You might assume you don’t need to teach your child about money as their school will do that job for you, but 80% of schools can and do opt out of teaching it. As a result, only two-fifths of young adults are financially literate, making it difficult for them to make big financial decisions about student loans and student living costs. So when they reach this point in their lives, you must help them to manage their money.
Understanding what a student loan is
Student loans have changed significantly in recent years. As of the academic year 2023/2024, tuition fees in England are capped at £9,250 and student loans up to this figure are available. Things are slightly different elsewhere in the UK. Scotland doesn’t charge tuition fees, whereas, tuition fees in Wales cost up to £9,000 per year. Tuition in Northern Ireland costs between £4,710 and £9,250, depending on where in the UK the student originates from.
Your child may also be eligible for a maintenance loan of up to £13,022 to help cover their living costs while they’re studying. Both of these loans are paid upfront straight into your child’s bank account. Suddenly having thousands of pounds in your bank account can be overwhelming, tempting, and exciting for a young adult, so you need to ensure they realise what this money is for.
Reiterate that student loans need to be paid back
Student loans need to be paid back, but students don’t start making repayments until after they complete their course and their earnings exceed a set amount (between £22,015 and £27,660, depending on which student loan plan they have). It’s natural for young adults to think that repayment is a long way off and to put it to the back of their minds, but this is a risky move. It’s best to help your child to start saving when they’re studying as this will support them in paying back their student loan, keep their finances healthy, and help them in the future with things like saving for a house deposit.
Some simple tricks your child will like that will kickstart their savings include automating savings, setting savings goals, and setting up a savings account alongside their current account. A good way to keep a trickle of cash going into the savings account is to use an app that rounds up every purchase and puts the extra into savings. For example, if your child spends £4.16, £5.00 is debited and the extra 84 p goes into savings.
Your child may also be unaware of the interest on their loan, which they'll have to repay. The interest is currently between 5.5% and 7.1% depending on which plan your child’s student loan falls under. Using a student loan calculator with your child will help them understand interest and make them realise how much they will realistically have to pay back. Learning about interest now will help them throughout adulthood as interest rates affect everything from mortgages, loans, and lines of credit. A prime interest rate is typically the base rate set. Your child needs to know how to keep a check on the prime rate and understand that when the rate rises any variable payments they have will rise.
Get to grips with student living costs
The University of Oxford reports that the average student’s living costs are between £1,290 and £1,840 per month. But, this does vary depending on where your child chooses to study. It’s worth sitting down with your child and coming up with a list of costs and a budget for each one. This list must include the cost of accommodation, food, personal items, studying, and social activities. Show your child various ways they can budget so they can choose the one that works best for them. Budgeting apps are particularly good for young adults as they can be used on the go, are automated, and will highlight mismatches between budget, income, and expenses.
Student discounts
One of the biggest benefits of being a student is the student discounts that are available. However, research shows that 13% of students don’t check for a discount before buying something online. Student discounts can save your child hundreds of pounds each year, so make sure your child knows how and why they should look for student discounts. If they’re likely to use their laptop to shop online, suggest sticking a post-it note to it as a reminder. It’s also worth looking for student discounts yourself and sending them on to your child. You should also direct your child to the student discount page on Money Saving Expert as this is frequently updated with the latest student discounts.
As your teen matures into a young adult and has to deal with finances in the form of student loans, you must be prepared to guide them. By doing this, they’ll learn to effectively budget, save, and manage their finances so that they’re at a lower risk of accumulating debt.
GUEST PUBLICATION BY: Alicia Gordon
For more information on how you can support your child in making the right choices after their GCSEs or A levels, you may be interested in reading The Parents’ Guide to Post 16 options or The Parents’ Guide to Post 18 options
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