Make sure you openly discuss financial matters
If you’re the grandparent, make sure you call the parents to discuss before you make any hard and fast decisions.
Know how much you’re willing to contribute, but don’t insist; while your help will very likely be appreciated, the parents may wish for their offspring to learn to budget.
They may also want the money to be a safety net, rather than a lump sum presented as a gift that could be frittered away on alcohol and takeaways (something very easily done if you’re unaccustomed to having sudden large sums of money in the bank).
At the same time, don’t allow yourself to be talked into giving more than you can afford - that will only breed resentment.
If you’re the parent, don’t feel ashamed or embarrassed about accepting money from generous grandparents. They only want your child to have the best start in life, just like you do.
Dilemma: My daughters keep asking for money
Meet in the middle
University may be the first time a teenager has to make ends meet on their own, and sometimes they can get it wrong.
As mentioned in the previous point, when someone has never had to budget before, a couple of thousand pounds in the bank feels like it will last forever.
A few nights out drinking, a few splurges in the shops, a few takeaways instead of cooking, will quickly show how easily money can be spent. But by then the funds are gone until the next instalment, and it's cereal or beans on toast until then.
Offering to match anything they earn over summer is a good way of instilling the value of money into them early. Having to work for a paycheck will make anyone a bit more reluctant to part with their money than if they simply receive a handout.
And the promise of more cash might spur them on to work harder than ever before, putting them in a good state of mind for when term time rolls around.
What every teenager should know about money
If you’re not as well off as you’d like to be, you might struggle to help out financially. But there are other ways you can make life easier for the new student.
Food parcels filled with pasta, rice and canned foods will ensure they’ll not go hungry, and you know exactly where your money is going.
Plus, if you send herbs and spices, you might entice a culinary novice to try to cook for themselves, saving money and gaining valuable life skills along the way.
Or perhaps you might offer to give them a crash course in cookery before they leave, as a way to help them and grab some valuable quality time together - something they might treasure long after any monetary gift has disappeared.
Gifts with no strings attached
While you want your children or grandchildren to knuckle down and work hard, odds are they will spend a large chunk of their time socialising and generally conforming to the cliché of the lazy student. But some might argue this is just as important a part of university life as going to lectures and writing essays.
They’re learning how to behave as adults, and part of that is working out how to budget, discovering the consequences of their actions, and learning from their mistakes.
If you don’t approve of their lifestyle and find a way in each conversation to remind them that they’re living on your money, it won’t earn you any goodwill, probably won’t change their behaviour and could cause resentment.
Just trust that they’ll figure it out for themselves, and when they get older, they’ll appreciate your kind gift so much more if it didn’t come with strings attached.
A guide to giving gifts to grandchildren
Student loans aka 'graduate tax'
A student loan is not a debt in any normal sense of the word. It is paid back through the tax system as an extra 9% tax on any income above £25,725 a year. Interest is added each year. After 30 years, any remaining loan and interest is written off.
With this in mind, it’s best thought of as a graduate tax that lasts from the April after graduation for the next 30 years. Five out of six graduates will never pay off all the loan in that time, so it’s not good sense to pay it all off early.
You will pay the full amount, whereas your child or grandchild will almost certainly not. If you really want to help, you could wait until they get a job and then pay the 9% tax as it occurs each month.
It’s impossible to predict who will earn enough consistently throughout their life to become among the 17% who pay it off in full. So it’s probably wise do not consider paying a grandchild’s student loan.
Other ways to help a student financially
Further anomalies of the student loan
Another way student loans are different from other debts is that they don’t appear on credit records when a graduate applies for a mortgage or bank loan. Repayments will affect available income when the affordability of the loan is assessed, though, and that extra 9% tax could reduce the amount they can borrow.
Students who go abroad also have to make repayments on their student loan themselves, and there’s a separate income limit for every country to reflect local pay. But even if repayments aren’t made, their credit rating still can’t be affected.
A current account using an app on their smartphone is a very good idea. These accounts - with banks such as Monzo or Starling - keep instant track of all spending and analyse it into categories.
This is helpful for keeping track of how much is spent and on what. Make sure the firm offering the app and account is a proper bank and covered by the Financial Services Compensation Scheme.
What every teenager should know about money
Find out what your contribution will be and try to make sure your student gets at least as much as the full maintenance loan. If you can’t manage it, this could of course be done by another relative.
Often it’s still not enough to live on. In some parts of the country the fees for a university residence can take most or even all of it. So parents who can afford to, will want to pay more - or ask grandparents to chip in.
One way to help is to pay the rent and leave the loan for the rest of the student’s expenses. That at least means they won’t be homeless.
It does however affect the useful lesson of managing their own money, so it may be better to encourage them to take a job in the summer, Christmas and Easter holidays or to work part-time during term.
Another alternative is to buy a home and rent it to the student and their friends. However, legal duties on landlords and tax rules make buy-to-let much less attractive than it once was.
Unless you really want to be a landlord, actively manage the property, and fill in a tax return to cover it then this might not be for you. If you can afford to buy the student somewhere to live by themselves that might be better, but remember the value of property goes down as well as up.
Never consider offers to buy a new-build student flat that promises good returns in the future. These are usually overpriced, come with hefty service charges, and are widely mis-sold. In fact, some have been sold and never even built. Many people have lost money on these opportunities. Avoid them.