Heading off to freshman year of college is a gateway to new experiences—a time to explore academic interests and meet new people. This could also be the first time that some students will have to embrace financial independence.
Sometimes, this is the first time that they are starting to manage money on their own, without their parents being right there with them to help them along the way. As parents that have been managing family finances for a while, we might assume our young adults know what to do. This flight from the “nest” might be a wonderful time to review some basic financial information to make sure your student is on the right path.
For parents, preparing your student to be financially successful in college is a delicate balance between supplying enough funds and know-how for your child to get by and becoming so overly involved that they cannot fully flourish, both personally and financially. Here is what to brief your students on before they head off to school—and what you should let your children learn on their own.
1. Do not deposit and dash:
For parents who plan to supply their student with extra spending money, realize that your offer is both incredibly generous and potentially hazardous. If you are doling out a semester or years’ worth of cash without a loose framework of how that money should be divided. Too often parents drop off their student on campus and say, “I've put $2,000 in your checking account for the year, spend it wisely”—and then that student is the most generous pizza buyer for the first month of college. Then by October, they do not have money to do laundry.
Instead, talk to your students about the importance of intentional, incremental budgeting. Help them set up a month-to-month plan that allows for unexpected expenses, such as an off-campus dinner with hall mates or a few extra loads of wash. That conversation is also a terrific opportunity to be honest about what they can assume from you; if you expect your student to save money to cover the last two years of tuition, for example, or if he or she will be paying for textbooks out of pocket, mention that now, experts recommend.
2. Embrace—and limit—financial slip-ups:
After helping with a budget framework, step out of the process and leave it to your student to make it work. If your student runs out of money during the first month, they are not going to starve—they can buy some Ramen. One of the best things parents can do is to allow your kids to struggle financially for a little bit if they mismanage their money, because the consequences are so much easier for them now versus what that would equate to when they are independent adults. You learn so much more from your mistakes than your successes.
Still, parents who remove themselves do not have to leave their students completely helpless. You can put limits on how dangerous financial experiences can be. Encourage your student to get a debit card or a credit card with a low spending limit and recap his or her financial experience together at the end of each semester or school year. Much of the learning during college happens outside the confines of the classroom, especially on the personal finance front. Student need to be free to make financial decisions, but within boundaries.
3. Credit cards – start building credit:
If your student has had some experience managing their own finances. Then work with them to get a credit card in their own name with a low credit limit. Have them set up some small recurring charges that have to be paid off every month. Let them use the card for emergencies and necessities, but make sure they understand that the credit card must be paid off every month. No exceptions – ever. This will begin to teach them how to budget and plan paying off major purchases and avoid credit card debt.
4. Encourage financial freedom:
Often, a part-time job—usually less than 20 hours a week—can help increase a student's productivity, organization, and time management skills, in addition to providing a little financial leeway. If your student works, suggest the earnings be used as spending money—whether they choose to put it toward laundry, occasional meals off campus, or extracurricular activities—rather than set costs such as tuition or room and board. By choosing where to allocate earnings, students actively make a connection between money earned and money spent and will likely be more effective at budgeting after college since – that is what real life is like.
5. Utilize web resources:
Though releasing the tether from your soon-to-be college student may still be a terrifying thought, rest assured that neither you nor your student needs to tackle the upcoming challenges alone. With the help of the Internet, students have money management resources at their fingertips. Check out Mint.com for help with your budget or explore the government-run MyMoney.gov for advice on making informed financial decisions. See if your school has a virtual financial literacy program that makes money issues fun and understandable.
And if it gets tough making the shift from “daily parent” to “occasional coach”, keep in mind that, after years of personal training within your family unit, allowing your student some leeway is a healthy route to tackling problems in school and beyond.
Money management, conserving, saving for what you need, and tracking your expenses are parts of what any adult needs to be successful, let alone a college student. Parents are teaching their kids not just how to deal with college, but how to deal with life.
If you are looking for a Financial Coach that can guide you towards financial security. Contact Stephen Westurn at phone 214.240.0701 or Stephen@Westurnconsulting.com to schedule a complimentary financial assessment session.
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