When your child first started school, you packed lunch and a snack on a daily basis. But now that your kindergartner has grown up, it’s time for you to make sure that your child has enough financial knowledge to manage money at college.
Lesson 1: Budgeting 101
Perhaps your child already understands the basics of budgeting from having to handle an allowance or wages from a part-time job during high school. But now that your child is in college, he or she may need to draft a “real world” budget, especially if living off-campus with responsibilities like rent and utilities. Here are some ways you can help your child plan and stick to a realistic budget:
- What income is there (money from home, financial aid, part-time job, etc.) and when does it come in (beginning of the semester, monthly, weekly)?
- Does your child understand the difference between need and want?
- What is your child responsible for and what expenses will you cover?
- Does your child know how to make money last an entire semester?
- How will your child track expenses to follow the budget set in place?
- Can your child set aside money along the way for large expenses?
Lesson 2: Opening a bank account
For the sake of convenience, your child may want to open a checking account near the college; doing so may also reduce transaction fees (ATM fees). Ideally, a checking account should require no minimum balance and allow unlimited free checking. Short of that, look for an account with these features:
- A simple fee structure
- ATM or debit card access to the account
- Online or telephone access to account information
- Overdraft protection
To avoid bouncing checks, it’s essential to keep accurate records, especially of ATM or debit card usage. Work with your child to balance a checkbook on a regular basis. If he or she has a part-time job during the school year or summer, encourage opening a savings account. Any income that doesn’t have to be put towards college expenses should be saved for life after graduation.
Lesson 3: Getting credit
If your child is age 21 or older, he or she may be able to independently obtain a credit card. But if your child is younger, the credit card company will require you, or another adult, to cosign the credit card application, unless your child can prove that he or she has the financial resources to repay the credit card debt. A credit card can provide security in a financial emergency and, if used properly, can help your child build a good credit history. However, the temptation to use a credit card can be seductive, and it’s not uncommon for students to find themselves over their heads in debt before they’ve declared their majors. Unfortunately, a poor credit history can make it difficult for your child to rent an apartment, get a car loan, or even find a job for years after earning a degree. If you’ve cosigned your child’s credit card application, you’ll be on the hook for your child’s unpaid credit card debt, which could damage your own credit history.
Here are some tips to help your child learn to use credit responsibly:
- Advise your child to get a credit card with a low credit limit to keep credit card balances down.
- Explain to your child that a credit card isn’t an income supplement; what gets charged is what’s owed (and then some, given the high interest rates).
- Teach your child to review each credit card bill and make the payment by the due date.
- If your child can’t pay the bill in full each month, encourage him or her to pay as much as possible.
- Make sure your child notifies the card issuer of any address changes so that he or she will continue to receive statements.
Finally, remind your child that life after college often involves student loan payments and maybe even car or mortgage payments. The less debt your child graduates with, the better off he or she will be. When it comes to the plastic variety, extra credit is the last thing a college student wants to accumulate! For help with budgeting, check out our Jacobi Wealth Dashboard and the Jacobi Media Center for tips. Team Jacobi is not only here for your financial needs, but also the guide for your entire family’s financial journey.