Student finance advice
Thousands of students will soon be leaving home to start university, becoming financially independent for the first time.
Going it alone can be daunting, but there are plenty of ways parents can help their children get on track with money matters before they start university. Here's our guide to some of the basics...
Student bank accounts
A student bank account is essential for anyone going to university. The key thing they offer, which many parents may initially balk at, is a free overdraft.
While some might view this as a green light to frivolous spending, very few students are fortunate enough to have the funds behind them to get through university life without getting into some debt. The majority will spend much of their time in the red regardless of how good they are at budgeting, so the fact they can do this without incurring interest charges is a big plus.
That said, student accounts can still impose high interest charges on any unauthorised borrowing, so it's really important to stick within the interest-free overdraft limit.
Don't be tempted by the freebies on offer either - the overdraft is undoubtedly the most important element and limits can vary widely depending on which bank you go to.
As a general rule, the amount you are able to borrow interest-free is tiered, rising each year. So, for example, you may be allowed to borrow up to £1,000 in year one, £1,500 in year two, and £2,000 in year three. Higher limits may be available in years four to five for students on longer courses, such as languages or medicine.
While it may be tempting for students to think of their overdraft as 'free money', it is worth reminding them that it will have to be repaid at some stage, so they should try not to borrow right up to their limit.
The overdraft facility and some of the freebies offered on student accounts are often the main factors taken into consideration when deciding which account to open. But check which banks have branches on campus, or nearby if it's not a campus university.
Staff at these branches will be experienced and used to dealing with the financial issues students placed, so it may be a better option to go for a bank that is close by, as opposed to opening an account for your son or daughter at the bank you've been with for years.
The majority of credit cards aren't available to students and school leavers because they won't have built up any credit history and so won't qualify. However, banks that offer student current accounts also tend to have credit cards available to students.
The main reason for this is that there are instances where it can actually be useful to be able to pay by credit card because you get additional consumer protection. Under the 1974 Consumer Credit Act and 2011 Consumer Credit Directive, if you make a purchase with a credit card for something between the value of £100 and £60,260 the card issuer and supplier are jointly liable.
So, for example, if you book a holiday and the tour operator goes bust, you could claim a refund via your credit card provider. You don't get the same protection with a debit card.
And students don't get offered ridiculously high credit limits. The limits on student credit cards tend to range from £250 to about £500. Obviously, this does give them the opportunity to rack up more debt - and it won't be interest free - but it also gives them the opportunity to learn how to handle credit. If they stick within their credit limit and get into the habit of paying the bill off in full it will help them build a credit profile, which in turn will make it much easier for them to get a mortgage and other forms of credit in future.
Parents commonly underestimate the value of their child's possessions, believing them to be worth £1,700 on average. However, according to insurer Aviva, the typical student has possessions worth £2,100 in electronics and bikes alone. This includes expensive gadgets such as smartphones and laptops.
If your son or daughter will be staying in a halls of residence or university flats, there could be a group insurance policy you can add them to. If there isn't, or they are in private rented accommodation, your own home insurance policy may cover their possessions while they are away at university. This may initially appear to be the cheapest option, but it could prove a false economy.
Students are prime targets for thieves, so if your child is burgled or loses their laptop and you have to make a claim it will affect your no-claims discount and bump up your annual home insurance premium. In this case, you might decide it is better for them to have their own standalone policy. There are a number of insurers that specialise in student insurance, including Endsleigh, Cover4students and Saxon Insurance. The student current account providers also offer insurance.
If your child is taking a car with them to university and you're looking for insurance cover, consider going for a telematics-based policy to keep costs down. These allow insurers to calculate premiums that properly reflect individuals' own driving behaviour.
Don't be tempted to 'front' the policy to lower the cost of car insurance. Fronting is when someone registers themselves as the main driver on a policy to lower premiums, when in fact their son, daughter or other less-experienced driver is the genuine main driver of the vehicle.
If the insurance provider discovers your policy was being fronted while processing your claim, they could reject it because the premium they quoted was not based on correct information.
Also, if your son or daughter's car is currently insured at your home address you'll need to contact the insurer to inform them of their address at university.
Many students don't bother taking their car to uni because of the expense, so you may be thinking about cancelling the insurance and just insuring them while they're back home in the holidays. This can save money but you will need to register the car as being off-road with the DVLA by completing a Statutory Off Road Notification (SORN).
It is now a legal requirement that all vehicles have to be insured at all times unless they are registered as SORN. Failure to do so will result in a fine of up to £1,000.
Broadband access is now an essential part of life for any student. There should be broadband access if your son or daughter will be living in university accommodation, but they'll probably need to sort their own out in private accommodation.
Plenty of companies offer broadband deals designed specifically for students. These are usually shorter termer contracts, which last for up to nine months at a time.
However, don't rule out longer term deals - short-term contracts can be more expensive and often come with an activation fee. They are also less likely to include freebies, as you are unlikely to be rewarded for such a short-term commitment.
If your child is moving into a student house, it's also worth considering a bundled deal, where TV and phone costs are bundled together with broadband resulting in savings.
Another thing worth considering is mobile broadband - this is where they can get internet access through the 3G network via a dongle. All the main mobile providers offer this and it can be really useful in that, as long as there's reception, you can get online anywhere. Prices vary so it's worth comparing what's on offer.
More advice on student saving...
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Disclaimer: Any content in our family money section is intended as general information only. For specific advice about your personal financial situation, get advice from qualified, independent, regulated professionals.
Last updated: 6 months ago