Finance 101 for Your New College Student
For many parents, this fall will mark a rite of passage when they send their kids off to college for the first time. Collectively, the parents and students will spend hours planning course schedule, and necessities such as furniture, housewares, and clothing. But how about credit? With the average college student taking on over $23,000 in student debt and $4,000 in credit card debt, parents should take some time before shipping them off for College Finance 101.
Plan a budget
Successful financial management starts with having a realistic budget for tuition, books, and living expenses. Your college will be able to provide estimates, but you should do your research to understand exactly what that entails and whether your student will be able to keep to that budget. Discuss what this budget will entail and what’s in and out of the budget.
Open a checking account in advance
Because ATM fees can really mount up, do your research to find which banks have branches and ATMs on campus. Then open an account in advance and fund it with an amount that will get your college student through the first months of school.
Wise credit management starts with avoiding credit when you can. Talk to your college-bound student about using debit for day-to-day expenses. Credit cards alter your spending behavior by separating the buying and paying events. Simply put, you just don’t feel the same sense of tradeoffs with credit, so you tend to spend more. College students on a budget can’t afford this run-away spending so should utilize debit for day-to-day spending.
Track your expenses
Tracking your expenses is essential to managing your finances. You can automate your tracking with online services like Mint.com or similar services. Parents who are helping pay for college should feel free to insist on seeing copies of their student’s finances.
Open a joint credit card with your student
You need to use credit to establish a credit history and build your credit score. But using credit responsibly can be a challenge for college students with little credit experience. You can help your college student by opening a joint account so they can take advantage of your longer credit history. Limit your risk and give your student boundaries by limiting the credit limit to $1000.
Use credit sparingly and pay it off in full each month
Because you have to use credit to build credit, you should plan with your student how they can use credit responsibly. One successful approach is to put books (and only books) on credit and then pay it off in full. This ensures that credit is used only a few times a year and that balances don’t build.
With some advanced planning you can set your college student up with a good system that will ensure their financial success.