As millions of parents send their kids off to college, it is critical that they counsel their scholars about safety, hygiene and, of course, study habits. But another important bit of parting wisdom is that these young adults are responsible for their finances and they should act accordingly. Here is a survey of the introductory topics to cover:
MONEY MANAGEMENT Each family has its own system for managing money, but in my experience the most successful plans start with a realistic budget. Create one with your son or daughter and then discuss what the parental contribution (if any) will be. You may choose to provide the student with a lump sum for the semester, though I recommend a monthly allotment, which should help young adults get used to managing finances in the same way they are likely to earn income after college.
CREDIT AND DEBT The Credit Card Act of 2009 created new rules regarding the extension of credit to those under age 21, which has meant that most college kids are prevented from getting a credit card on their own. If parents want their kids to have a card for an emergency, there are a variety of options.
Debit cards are helpful for budgeting, but they don’t help build a credit history, and they can be more of a hassle than credit cards in the event of identity theft or a data breach.
Students can get credit cards in their own names with parents as co-signers, or parents can add a child as an authorized user to their own credit card accounts. Either way, there could be reckless spending, and in the case of co-signing, parents and kids marry their credit histories, for better or worse.
A good compromise is a secured credit card, which limits the liability but establishes a credit history. A secured card requires a cash collateral deposit that becomes the credit line for the account. For example, if you put $500 in the account, the card user can charge up to $500. You may be able to add to the deposit to extend credit, or sometimes a bank will reward you for consistent payments and add to the credit line without requesting additional deposits.
Encourage your child to get into the habit of checking his or her credit report by going to AnnualCreditReport.com. Do it at the beginning of every academic year. If there is a mistake, notify the credit-reporting agency and stay on top of errors that need to be removed.
BANKING Choose a bank that offers free checking and saving accounts in order avoid fees. Shop around to find an institution with convenient ATMs near campus to eliminate out-of-network charges. This is a great opportunity to explain about balancing accounts, which is much easier these days with online banking. Both students and parents should check the account regularly.
SAVING If your college student is working to help pay the bills, encourage her to save at least 10 percent of earnings, which can go directly into the bank account. Upon graduating, your child may be pleased to find that there is a pile of money available to help pay down student loans or to rent a new apartment.
IDENTITY PROTECTION The incidence of identity theft for college students is on the rise. Students need to guard personal information, refrain from using public Wi-Fi to pay bills or shop, and be wary of oversharing on social media. They should also update their virus protection services and, when possible, use two-factor authentication, which adds an extra step to logging into a website.