Do you have a child who’s headed to college – or maybe already attending? If there was a financial intelligence exam, you would want your student to ace it! Help your student develop good money management skills. That knowledge will pay dividends for a lifetime!
For most students, going off to college is the first time they’ll be on their own. It’s imperative that they learn to be responsible for themselves. As parents, we hope any lapse in personal judgment has only minor consequences. Unfortunately, poor financial decisions can impact them long after graduation. Here are some topics to broach with your child to help him/her ace the personal finance side of college.
The Importance of a Budget
Students encounter endless opportunities for spending money while in college. Those who aren’t financially responsible for the cost of tuition, room, board and books may get distracted by other discretionary items such as clothing, entertainment, dorm room décor, etc. If they want to have extra cash in their pocket at the end of each month, they’ll still need to learn the value of budgeting.
Students living off campus must cover rent and utility payments as well as food and household items for the semester. Creating a budget is mandatory for them. If your student is in this situation, be sure that all roommates sign the lease and utility agreements. The only liable parties are those who have signed the agreement. Getting stuck with extra rent and utility payments can wreck even the best planned budget!
Credit Card Etiquette
It’s only natural for parents to want their children to have access to funds in an emergency, and for many students the easiest way to do that is with a credit card. To apply for their own card, your student must be at least age 18 and able to show his/her own source of steady income. It’s typically easier for students to obtain a credit card targeted to those attending college or one that’s secured (a deposit must be made against the credit limit for the account). According to creditcards.com, the top three student credit cards for 2019 are: Discover it® Student Cash Back, Discover it® Student chrome, and Deserve® Edu Mastercard for Students.
Another option may be to add your child as an authorized user on your credit card. This provides him/her a credit card, secured by you, but also helps build his/her credit. Be careful. It’s important to understand the potential risk of doing so, and to inform your student of the responsibility of paying his/her share of the bill each month.
Before applying for any type of credit card, have a conversation with your student about what the card should be used for and who will be paying the balance. This talk will help avoid unwanted surprises (on either side) when the bill arrives. And paying off the balance each month should be mandatory. Students graduate with enough student debt. They don’t need the added burden of credit card debt!
The Danger with Debit Cards
While you may think a debit card is better for your student than a credit card, think again. When you use a debit card, the payment comes directly from your checking account. You would assume that if there isn’t enough money in the checking account, the transaction would be denied. Unfortunately, it doesn’t always work that way. If a debit card transaction is made after bank business hours it may be approved based on the checking account balance at the end of the business day. So, a debit card transaction can create an overdraft. And overdraft fees can be expensive! Online or phone app access to checking account balances will make it easier for your student to avoid this.
Make sure your student understands the importance of regularly reconciling his/her bank account. Reviewing the statement each month may reveal errors that should be corrected.
The Consequences of Poor Money Management
When your student is personally responsible for paying a bill, he/she is creating a credit history. That’s a good thing! But if your student misses a utility bill or credit card payment or routinely pays late, his/her credit rating may suffer. After graduation, when your student wants to rent an apartment or purchase a car, a poor credit report can hinder the process. In addition, many employers require a credit check as part of the application process. Poor credit can keep him/her from landing that dream job.
The temptation to "keep up with the Joneses" starts at a young age. Make sure your child understands his/her own financial situation to lessen the chances of breaking the budget. If you haven’t already had "the talk" with your student, winter break is an opportune time. With your guidance, college can provide an excellent opportunity for your child to develop sound financial literacy that will benefit him/her well beyond college.
Kathy Hower, CFP, is Director of Financial Planning and Senior Wealth Advisor at Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at or email Kathy.