Financial essentials for the new student
Is your child about to start university? Are you worried about how they'll cope financially? Do you have nightmares about them sitting alone in dreary student digs, crying into a tin of beans?
Well fear not, Moneywise is on hand to help you, help your children stay on top of their money and make the right financial choices.
Assuming you've already arranged a maintenance loan that all full-time students are entitled to, you'll be relieved to know there are just three financial priorities to sort out - opening a student bank account, insuring their belongings and teaching them to budget.
Student bank accounts
For most young people, their student bank account will be the first non-savings account they'll ever open and the first time they'll have an overdraft. A generous interest-free overdraft can be a real lifesaver, seeing as the majority of full-time students in the UK face a shortfall between the amount in maintenance loans they receive and the cost of living that they'll have to fork out for.
In 2013/14 most full-time students will have a maintenance loan of £5,500 a year, which equates to a budget of £611 a month spread over a nine-month academic year. However, a survey by SaveTheStudent.org found that the average monthly spend in 2012 was £687, so if we use this figure as a guide for spending in the new academic year, that's an immediate shortfall of £684 over the nine months of study.
Picking the biggest interest-free overdraft, therefore, is a good way to decide which student bank account to open.
Halifax and HSBC both offer an interest-free overdraft of up to £3,000 available in each year of study. Meanwhile, the Barclays account comes with a £2,000 facility and First Trust Bank £1,850. Lloyds and Santander offer interest-free overdrafts of up to £1,500.
Some accounts increase the overdraft facility over time, however. For example, the Co-operative Bank's student account lets first-year students rack up an overdraft of £1,400, rising to £2,000 in the final year. Meanwhile, the NatWest and RBS versions start at £1,000 before being extended to £1,500 by the third year of study.
Some accounts come with impressive freebies, too. For example, Santander's comes with great freebies such as a free four-year 16-25 Railcard that normally costs £30 a year and gives the holder up to a third off national rail fares. Others come with high street discount cards or an NUS Extra card, which also offers all sorts of money-off deals. But don't forget that these are just gimmicks and don't be distracted by them when helping your child find a suitable student account. What really matters is the interest-free overdraft.
Once the hoard of smartphone, iPad, laptop, camera and jewellery is totted up, the typical student takes £2,652 worth of belongings with them to university, according to student insurance specialist Endsleigh. Unfortunately, students are the most likely group in society to be targeted by burglars, according to
The main way to protect all these valuables from theft, damage or loss is through a contents insurance policy. Either your child can take out their own policy or they may be able to have their belongings added to your existing contents insurance.
A student contents policy with Endsleigh - for up to £750 of laptop and gadget cover (including a smartphone) - starts at £8.99 a month, while cover for up to £1,000 costs £10.99 a month. The policies include lost items, 24-hour replacement, liquid damage, accidental damage and theft as standard.
There's also an option only to insure the things they need to cover. For example, room cover is available from £15 a year and protection for theft, loss or damage to their possessions in their house or room while they're studying and at home during the holidays is included.
However, separate student contents insurance can work out more expensive than adding your child's belongings to your own contents policy. For example, consider the LV= home insurance policy that covers contents worth up to £5,000 (not including bikes) as standard, and includes them even when they are 'temporarily removed' from the policyholder's home and kept in student accommodation.
Such a policy based on a three-bedroom home in Canterbury with £20,000 worth of contents cover overall costs £59.24 a year. And to add £2,500 of personal possessions cover to insure the student's belongings while they're out and about would take the annual premium to £89.29.
So even with cover for student possessions at more than double the amount that comes with Endsleigh's more expensive student policy (£1,000 worth of cover for £10.99 a month), that's £42.59 cheaper a year. It's also £18.59 a year cheaper than Endsleigh's budget cover.
It's also cheaper to insure a bike through LV='s home contents insurance, adding just £32.05 to the annual premium for the house in Canterbury, rather than the £54.50 Endsleigh charges for the privilege.
Be aware, though, that whether you go with a specialist student insurer or top up your own contents insurance, different insurers will have different rules. For example, some will only cover students' belongings if they have a lock on their room door.
One other important thing to bear in mind, regardless of which policy you go for, is the excess. There's no point making a claim for your child's damaged laptop, only to end up paying a hefty excess and seeing your renewal premiums go up the following year.
Teach them to budget
Lastly, the skill of learning to budget is a valuable one for any student to learn - the sooner, the better. When setting a budget, the most important thing is to be realistic. While of course it would be better to spend every last penny on textbooks, fruit and veg, students will be students and that inevitably involves spending money on socialising.
Figures uncovered by a national student survey carried out by SaveTheStudent.org last year can be used as a rough guide to setting a budget for the new academic year. The average total monthly spend across the UK was £686. The biggest proportion of that (£230, or 34%) went on rent. Food and essentials swallowed up £140 and socialising accounted for £120, travel £40 and energy bills another £40.
By thinking about these numbers now, you'll have time to work out if your child's student loan will be enough for them to live off. If not, you can consider whether you can afford to help them or perhaps they will have to find a part-time job to fit around their studies.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
Does exactly what it says on the tin: covers the contents of your home for theft and damage and also may insure certain possessions (jewellery, cycles) outside of the home. Things to watch for include the excess and also the maximum payout on individual items. Another grey area is kitchen fittings, as some contents policies say these are not contents but part of the fabric of the property and covered by buildings insurance and some buildings policies don’t cover them because they regard them as contents.