Parents can make a bargain with son over student debt

Q: My son is completing his last year of university at McMaster. He’ll have about $12,000 in student loans when he graduates. My husband and I would like to help out so he can start his life without any debt, but we don’t want him to expect large gifts of money in the future. We never

received money gifts and we’ve done just fine. What should we do?

A: First, let me commend you on wanting to help your son in this manner. It’s wonderful to think that any young person could graduate without student debt. It’s really tough, and even demotivating, for a young adult to start a career and begin saving and planning for the future, when he or she is already behind the eight ball.

Imagine that a new graduate has just finished school, begins a career and starts to make a few bucks of his own. But instead of feeling good about becoming independent and being responsible for paying for his own housing and food, and having a bit of lifestyle and some savings, he finds his newly earned monies are directed toward paying for something that has already happened. Too many students nowadays are in this position: they graduate from school but they don’t graduate from paying for school. I find that if young adults start off with tens of thousands of dollars of debt, then this becomes their norm, and they’ll live a life of perpetual debt. Of course, this is not the way to create financial success.

But there’s good news. There may be a way to help out, while encouraging good financial habits rather than bad ones. In fact, if you and your husband have done well financially, then you probably did so thanks to good money habits of your own, which your son has likely picked up through osmosis, as it were. During his childhood, he would have seen how you handled and managed money and your good habits and values would have been instilled in him at a young age.

Likewise, if your boy manages to graduate with only $12,000 of outstanding debt, then I’m going to guess that he may have helped out with funding his own postsecondary education. Perhaps he had a paper route as an adolescent, or maybe he babysat younger kids, or had a part-time job as a teenager. These are superb experiences to have as a young person and maybe he directed some of those savings toward his schooling. We all have a sense of pride when we can convert our time and energy into money, which we can in turn render into products and services that we want. And now your new graduate will be able to take these same skills into his early adult life and beyond. But there’s still that $12,000 debt to take care of.

Here’s an idea for you and your husband to contemplate as a graduation gift to your son: sit down as a family and ask your son how he intends to eliminate his student loan. Let’s suppose that his plan is to pay off the debt over the next four or five years, and he’s calculated the payments to be $300 per month. You could offer an ethical and loving bribe, such that you and your husband pay off his student debt with the promise that he directs the same $300 per month toward his financial future.

Every single month he’ll feel that he’s making progress and he may be motivated to continue this habit of saving and investing, long after the timeframe in which the student debt would have been paid off. As his career progresses, he may decide to increase the amount he saves and invests monthly, to really compound the financial effects. With any luck, the practice of regular savings will become part of his financial DNA. And with this stellar financial habit, he may do just as well as his parents – without any expectation of large gifts of money from his folks in the future.