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Rules of the money game

It is not skyrocketing tuition costs that are causing the most financial problems; it’s families not knowing the rules of money management and how to apply those rules to the money game. Should you need to borrow money for your teens’ education, remember that you are investing in their futures, and the investment will only appreciate. For most students who have debt, the average undergraduate debt load is around $26,000. This represents the cost of the average new car that many would pay for gladly over five years. Cars depreciate; education only appreciates.

Without following the rules of money, you will be doomed to repeat mistakes that previous parents and students have made. The following list is just the “next step” in postsecondary financial strategies.

Start to plan for your child’s education now. Your child’s income should be part of this plan. When the Ministry calculates a student’s contribution, they expect that when students live at home, they save two of every three dollars for their education. This means that if they earn $90 a week at their part-time jobs, they should save $60.

Parents and students shouldn’t look at what they should have done or what the government should do but instead what they can control now. There is more power in action. Remember that it is not what you can or cannot do for your children, but how soon you let them know the strategy.

Put your and your students’ plans of contribution on paper, including what you expect from your teens in return for your investment. You and your teens should both sign the agreement. Your contracts will probably be different for each of your teens. It will be important to recognize this in your strategy.

The Ministry of Education and Training, under federal guidelines, believes that a student’s family is responsible for supporting the student for four years after the teen finishes full-time high school studies. The provincial guidelines require parents to provide their financial information for five years after a student finishes full-time secondary studies. Students and/or their parents do not get to declare that they are independent.

Ontario Student Assistance Program (OSAP) for the Province of Ontario is user-friendly and online at http://osap.gov.on.ca. Your teens need to apply early—in May or early June for fall programs. Attend presentations put on by high schools about applying for funding. If you are surprised by the amount of funding your teen receives, check with the school to make sure that no error was made. Be honest about your income. The Ministry has checks and balances to make sure that needy students get the funding they deserve.

Every student should apply for scholarships.  The “Aim 4 the Top” or “Queen Elizabeth II” scholarships use the Ministry database for administering funding even though they have different need criteria. You do not know what life will be handing you during the year. Even if it is a nil assessment, should your family’s circumstances change, your teen can still get funding within two weeks if you notify the school.

Remember, OSAP is to assist your family with paying for postsecondary education, not to totally fund school. Do not forget that OSAP is debt. If your teen does not qualify for OSAP funding, he or she can apply for funding using a student line of credit. All major banks offer student lines of credit. Your job is to ask the right questions, such as:
What is the interest rate while my teen is in school full time?

When does my teen start paying the principle on the loan?

What will be the interest rate when my  teen is no longer in school full time?

What is the amount of funding that my teen can access each year?

What is the maximum funding that my teen can borrow?

Borrowers pay interest on a student line of credit daily. This is different from OSAP, which does not charge interest as long as the student is in school full time. Therefore, for student lines of credit your teen should still be paying down the loan during the summer.

Have you taught your children the difference between a want and a need? Do you know the difference? It will not matter how much money you can put together for their educations if they have not been trained to make good decisions.

Many people think that having to work to pay for school is a new concept. I do not find this to be true. The government has documented that students who work between six and 15 hours per week do better in school than students who do not work at all. However, students who work between 15 and 20 hours may have their A’s become B’s and their B’s become C’s or worse. More than 20 hours of work per week can lead some students to drop out of school because paying rent or earning money for groceries becomes more important than their marks. Therefore, helping your teens budget for their education and knowing how much they will need to work is vital.

Your teen can search for scholarships and bursaries online very easily. Your student needs to get started now to meet the many deadlines. One of the best sites is www.studentawards.com. You do not have to order anything; just answer the questions and wait for the Web site to give you the different awards your teen should apply for.

If an award requires an essay, volunteer work or references, you have a better chance of getting the award.

Many students do not put a lot of work into their applications, which means those who do have a better chance of standing out Remember, they are building a résumé as well as applying for awards.

Students can get an education in many ways. They should have ideas of what they wish to accomplish. You would not do a puzzle without constantly looking at the picture of what you are making. It is the same with planning or paying for education. Have plan A, plan B and plan C. If your teens decide that failure is not an option, they will be open to the many opportunities available. Too many students self-eliminate from awards because they want to be told they will win before they put the work into the applications. But you can’t win if you don’t apply.

Students will get credit cards whether you say they can or not. Educate your teens about credit. Students need to know some basic money-management rules; too often, they think that it is only large sums of money that can make a difference when in fact $1 can go a long way. For example, you can cut years off paying a hefty credit card bill by adding just a few more dollars to each minimum payment.

If you do not have comprehensive knowledge of the money game, enlist someone who does. It is not necessary to go high-tech. Remember, you need to have control of the decisions your family makes—don’t leave it up to a third party. It is very important to know who is giving you the information. The trick is to know what questions to ask and how the process works.

Many schools, guidance offices and financial offices sponsor programs to educate your family and students. One book I strongly recommend students and parents to read is The Wealthy Barber by David Chilton.

Ask questions, seek answers, start now and empower your teens to become leaders in the money game.

Marilynne Davies is student financial services officer at King’s College in London, Ontario, online at www.uwo.ca/kings.

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