Personal Finance

If you're a parent who remembers the "magic" of senior prom as involving a corsage, a decorated gym and some surf and turf at Red Lobster, the 21st century prom date may come as something of a surprise to you. These days, your high school student's prom has become a much more sophisticated affair; and a more expensive one. Proms now take place in hotel ballrooms; and some of the expectations your child may have could include a limousine rental, hotel room reservations, and even a group breakfast at a local diner. Add in the costs of preparation, such as getting makeup and hair done, tuxedo rentals, formal dress purchases and even tanning sessions - your teenager's prom can end up costing from a few hundred dollars to even a thousand.

Before prom preparations drive your teenager to an early nervous breakdown, this might be the time to sit down with your son or daughter and do some financial planning around these costs. After all, this may be the first major event they've had to fiscally plan for, but it won't be their last. With a budget and some preparation, you can help them have a night to remember while avoiding a lot of craziness before and an overspending headache the day after!

First of all, write down all of the expenses you anticipate and go over them with your teenager. Will there be a limo rental? If so, how many people will be riding along, and can they split the cost? Show them how to call around to a few different limousine services and compare prices. These skills will serve them well later in life in all kinds of different contexts.

Second, how much of the cost can your teenager pay for themselves? Making the costs explicit, as well as your expectation that mom and dad are not going to foot the bill for everything, encourages independence and helps your teenager feel they are in control of this aspect of their life.

Finally, suggest places where cost-cutting measures could save everyone money. For instance, do they really need a portrait photographer, or can Dad take the picture with his digital camera? How about that two for one coupon at Red Lobster? With proper planning, the prom can be an opportunity to build skills, as well as make memories.

It seems like just yesterday they were outgrowing their baby clothes, and now your kids are graduating from high school and starting to look at colleges. Obviously, you want to give your kids the best start in life you possibly can. But these days, even a year of college tuition can cost as much as your entire undergraduate career did in 1989. And with what you've managed to put aside in the "college fund," youll barely be able to cover the bookstore bill. What now?

Before you take out a second mortgage on your home, make a realistic assessment of what you can afford and whats going to be manageable for both you and your child in the future. A ten thousand dollar loan may seem reasonable for your childs freshman year, but be realistic. Do you have younger children who will be college-bound in the next year or two? You might not be able to do as much as you would like to help with college education costs, but there are other options for borrowing.

First, let your child borrow in his or her own name first. Even if you plan to pay back the loans yourself, it's the way to get the best student loan rates available. The Stafford Loan Program has the lowest student loan interest rates at 6.8%, and while it only lets you borrow $2,625 toward freshman year tuition, that maximum rises to $5,500 when the student is a junior.
For parents, PLUS loans are a federal loan program that allows you to borrow as much as you need to fill gaps in federal aid, for a low fixed rate of between 7.9 or 8.5 percent.

Finally, before you shell out for the best college money can buy, make sure your child is applying to a range of schools that provide options for financial aid that they might qualify for such as scholarships, grants, or in-state discounts on tuition. And dont be afraid to discuss college costs frankly with your college-bound child. The financial example you set now will not only help your child prepare for college, but for the financial planning challenges they will meet in their own adult life.

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