Trevor James has one more year to go before university but conversations about how to finance his academic dream of getting a PhD in history are already taking place at the family dinner table.
His mother, Gwyneth James, expects her son will help cover his university costs. "He needs to feel invested in every sense of the word. His dad and I agreed that we will split it three ways."
Ms. James and her ex-husband have some money stashed in a Registered Education Savings Plan (RESP). She will need to come up with the rest of her share, and her son knows he will have to do the same.
The Peterborough teenager has a summer job and will work part-time during the school year. He banks his paycheques and spends his tips. But coming up with an estimated $4,000 – for just his first year – is going to be tough, his mother acknowledges.
"When you are 17, the realization that you may have to take on debt is freaky," she said. "That is the next discussion we will have – how much he is going to need to borrow."
Trevor James is more fortunate than most teenagers because his mother, a chartered accountant, is talking with him about money already. Rising tuition costs and higher living expenses have increased the sum of money needed to get through school. At the same time, getting a credit card is easier than ever and students could quickly find themselves saddled with debt.
Tom Hamza, president of the Investor Education Fund, said all parents who are sending their children to university or college should have a serious financial chat.
"The magnitude of the finances has increased. Yet the awareness of, or training to deal with finances has not increased at all," Mr. Hamza said.
"If you get into credit issues as a student, you can dig yourself into a massive hole very early on in your life," he said. "This is the first time that kids will have huge resources at their fingertips so we need to make sure this is going to be a positive experience."
He has these financial tips for parents with children about to embark on a post-secondary education:
1) Make a budget.
Take the process seriously by breaking down realistic spending categories and detailing what is expected to happen in the eight months of a school year. A budgeting exercise needs to be thorough; even a simple line item like school supplies can be thrown off by a year's worth of unplanned $60 printer cartridges.
2) Draw up a spending plan.
Ask your child to develop a detailed spending plan. Have them figure out how much they expect to spend on rent, utilities, food, entertainment, travel expenses and textbooks. Once they have done that, have them present it to you. If you are the banker, you have the right to demand a business plan and to critique it.
3) Revisit the budget.
Every plan should have updates, and parents would do well to get a financial update at Thanksgiving. Those heady first six weeks of new demands, friends, and a restructured life can play havoc with finances. The reality of that time is an important financial-planning lesson in itself.
4) The credit card conundrum.
Credit cards are not inherently evil. Nor are they avoidable later in life, so introducing them now can make sense, unless there is a serious question of your child's fiscal rectitude or judgment. Treat them as a useful tool that must be used with restraint and paid off monthly by setting firm ground rules. The fact that they make it easy to track spending can be a bonus for parents.
5) Lump sum or stream of payments?
Handing your child a lump sum doesn't leave much room for mistakes or poor judgment. If your child is going away to school and you are helping fund them, a stream of payments makes more sense. It provides periodic accountability, which only helps encourage discipline, while ensuring that any mistakes can be learned from.
6) Taking on debt.
As with other major investments, education can involve debt. A structured payment program can help control this and put it into context. Sit down with your child, plan out the potential total debt load, and talk about how it will be paid off in the years after school. This kind of approach can go a long way to instilling frugality early on in life.
Parents and students looking for further information can check out the Investor Education website on getting an education, which includes links on everything from living on a budget to what kind of financial aid is available. Their university cost and debt calculator allows students to get a long-term view of the eventual cost of their degree and the implications of paying it down.
Roma Luciw is the web editor of the Globe Investor personal finance site and writes for the Home Cents blog. If you have an idea for a set of personal finance tips, email her at firstname.lastname@example.org