Have You had “The Talk” Yet?

alarm clock and money representing if you have had the college money talk yetAs families approach the college planning process, there’s one thing they need to do before anything else and that is have “the talk.” I know, parents have been putting it off because it can be embarrassing. Who wants to discuss such potentially intimate details with their teenagers? Besides, you’re pretty sure the school counselors have covered the topic so there’s no point in having to suffer through the rolling eyes and general awkwardness if you don’t have to.

Well, I’m telling you right now that you have to because “the talk” I’m referring to isn’t the “birds and the bees” but something just as important, “The Money Talk.”

I’ve been meaning to write about for a long time because it’s something that tends to be overlooked in the college planning process.

Oh, you’ll see occasional comments to start early and make sure your kids understand the risks of taking out student loans. But you rarely see anything that encourage parents to talk to teens about avoiding the principal cause of excessive student loans–picking an unaffordable college to begin with.

This is why I reached out to five college financial aid experts, to get the essential information families need to have “The Money Talk” and what financial pitfalls to watch out for.

The Money Talk Needs to Happen Early

All the college financial experts say that the conversation should happen before students even start visiting colleges, much less applying to them. This means having “The Money Talk” sometime between the end of the sophomore year and the beginning of junior year. After all, Paula Bishop, a certified public accountant and a college financial aid advisor, says you don’t want to let “the kid fall in love with a school without talking about money.”

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However, a major obstacle to having “The Money Talk” is that too often, the parents need to have one first. According to Bishop, it’s hard for the “parents to have the talk when the don’t even know how much they can afford.” Joe Messinger, financial planner and  a leading authority on late-stage college funding, agrees with the importance of mom and dad being on the same page “before bringing your student into this conversation.”

Keep in mind though, this shouldn’t be the first time your kids have heard from you about college and money. Students should start having a general idea about college and costs by the time they start high school.

Beth Walker, financial planner and author of Never Pay Retail for College, recommends parents “discussing college, costs, constraints, etc. when the student starts high school.  I would recommend starting BIG PICTURE and concept and then work my way into specifics so that real numbers are being used when a student is in the 2nd semester of their junior year of high school.”

By starting early, students will have the opportunity for even more scholarships. This isn’t because they can plan to take more courses but because they can actually apply to more scholarships. Luanne Lee, founder of Your College Planning Coach, advocates having “students searching for scholarships as early as 7th/8th grade, writing about 10 essays each summer. The earlier they start with this they will find more scholarships they can qualify for.”

Once you understand the best time for “The Money Talk,” you still need to have the actual talk. Don’t just talk about having “The Money Talk,” you need to actually do it. Messinger argues for putting “it on the calendar or it won’t happen.”

(If you’re looking for what to actually say, check out the scripted conversation starters in The Financial Aid Handbook by Carol Stack and Ruth Vedvik.)

This can set the stage for weekly scheduled college talks which can help avoid future stress. Bishop suggests picking “a time each week that is college time, every other time is off limits. Kids don’t ask why aren’t you comparing cell phone plans when you’re watching TV.” This means no asking “why aren’t you researching colleges instead of texting?”

What You Should be Talking About

So what should “The Money Talk” cover? According to Mike Branch, Certified Financial Planner, the discussion should include “three questions every family must answer:  1) How much does college cost? 2) Who is going to pay for what? And 3) Where is this money going to come from.”

These questions require families knowing their Expected Family Contribution (EFC), going online to find out the total cost of attendance and using college net price calculators (NPC). This is before you even start planning your college list.

Messinger advises using NPCs for four schools to start with: “One in-state public school, one out-of-state public school, one small private college, one elite private or Ivy League college.” This will get everyone familiar with the process and the information needed to compete the NPCs. A smart tip from Bishop is to “have a worksheet and put in the same numbers each time.”

The point of having “The Money Talk” before students start visiting colleges is to ensure that students apply to colleges they will be able to afford. They should understand that some colleges will be more likely to meet their financial needs than others and target colleges for their list appropriately.

What Happens When You Don’t Have the Talk

Families that fail to have “The Money Talk” are setting themselves up for significant disappointments when receiving financial aid awards and will often find themselves with limited financial options.

Parents need to make sure they have “The Money Talk” and take responsibility for making adult decisions. Branch believes that “the absolute biggest mistake parents make is to let their kids be the sole driver of the ‘college choice’ decision. How much a family pays for college ultimately comes down to the school their kids choose to attend. Unless a student is capable of paying for the entire cost herself, it’s a family decision.”

Like most financial planners, Lee warns parents against taking the “Don’t worry, you can go to ANY college you want to! We’ll figure out how to pay for it” approach. You wouldn’t look to buy a house without knowing what you can afford. It’s simply irresponsible to let your teen start looking for a college without knowing how much you can afford. Walker likes to use the “analogy of buying a new car – just because I really like driving a luxury vehicle, it doesn’t mean I can make the monthly payments, pay to maintain, license and register the vehicle. Some very desirable cars are simply out of reach and we need to make that perfectly clear.”

“The Money Talk” should let the student know how much the parents will contribute from savings and current earnings. The parents need to provide the students with information necessary to complete college net price calculators. The students need to know that they can apply to a college but if they don’t receive a minimum amount of financial aid, it will not be affordable. And since most students can’t take out private student loans without cosigners, parents, Branch argues, must be willing “when necessary, step in to say ‘no.'”

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