5 Tips to Help Your College Bound Child be Money Smart
That day has finally arrived – the day you drop off your child at college. Your child has spent years preparing for this moment, taking standardized tests, filling out college applications, and taking college-prep courses in high school. Your child has left the nest, but hopefully, only to go on to a still somewhat sheltered environment.
For most young adults, this is their first time on their own, fending for themselves on a day-to-day basis. While they may be prepared for the rigor of college classes, how prepared are they for managing their personal financial affairs? Like preparing for college courses, preparing for being financially responsible requires some effort. Some children are going to be natural savers, while others will be natural spenders. Nevertheless, all children can benefit from some practical knowledge on money. Here are some suggestions to review with your young adults:
Talk to Your Child
Everything is going to be new and different. This is a wonderful opportunity, but can, at times, be challenging to navigate. Certainly one of the most challenging areas is expenses. It is helpful to have a money discussion with your child and pre-decide how much you, the parents, are spending and for what type of expenses and what is the responsibility of the child. Even when it comes to expenses you have claimed responsibility for, you may want to set limits.
Open Both a Checking Account and Savings Account
Teach children the difference between the two. Children need to know how to write a check, make a deposit, withdraw money, and reconcile their checkbook. There are numerous online tools and apps that will download transactions and allow for categorizing expenses. Some are free and others do cost. One option is a simple ATM card and using a credit card for purchases. Credit cards tend to have stronger fraud protections than debit cards and if somehow your debit card is stolen or your account is compromised, it is possible that your bank account could be frozen for a period of time or you could be bouncing checks while everything is sorted out. Whereas with an ATM card since it is limited to just using it for banking the risk of the card getting stolen or compromised is less than a debit card and therefore, less potential risk to your bank account.
Create a Budget
Learning how to budget is the most difficult and yet essential skill for growing wealth over the long run. Learning this skill early can greatly benefit your child in the future. Spending is usually not super significant in high school, but can be much greater in college with more expenses as well as opportunities to spend money. Helping your child understand where his or her money is going can be very helpful. Here too, there are a number of helpful software and online tools including Mint, YNAB, (you need a budget), Quicken, and PearBudget. Note that some tools are free and others do have a cost. Excel can be another great option for learning how to create and manage a budget.
Explain Their School Benefits
Make sure your child understands how his or her meal plan and other school benefits work. Schools have an extremely varied assortment of meal plans and other amenities. Try to explain to your child what benefits are available as well as which ones are free and which ones seem “free”, but in actuality are being paid by the parents.
Start a Credit Card
Establishing credit is a positive thing, and being able to responsibly manage a credit card is a critical skill. Learning that credit card balances must be paid on time and the developing discipline with credit card spending will help your child in the future. A credit card that is simply being paid by the parents, no questions asked, could, however, be a harmful crutch. This is because your child won’t link his or her personal consumption to cash and budgeting. It helps to determine in advance how the credit card will be used, who is paying the credit card charges, and how much can be spent in a month.
Using these five tips, you can give your child a great start in developing the skills needed to be financially successful living on their own for the first time.
If you're a parent, what did you do for your children when they went off to college? What did your parents do for you to prepare you for college? What do you wish you or your parents did differently?
The views shared in this article are not meant to be construed as advice. Moreover, no client or prospective client should assume that this content serves as a substitute for personalized advice from Affiance Financial.