Today we welcome John Gower, who is knowledgable about all things finance (i.e., How to Pay for College). In this article, he’ll share with you some tips on how to manage your money before you enter college and especially while you’re in college.
As high school seniors prepare to head to college, the prospect of independence is near. However, that independence might not be as hands-off as they (or you) would like. Managing your child’s expenses while they are living at home is quite different from doing so while they are in a dorm room halfway across the country. Before the big move-in day, consider these tips for steering your soon-to-be college freshman towards a life of financial independence and success.
1. The basics: Staying in the green
If you have not done so already, help your student open a basic checking account. Many banks offer accounts targeted to students with no minimum balance or maintenance fee. The account you open does not necessarily have to be at the same bank you yourself frequent. A better gauge of which bank to pick may be the proximity to the campus your child has chosen to attend. Finding an account with the lowest fees and having easy access to an ATM for cash withdrawals ought to be the driving concerns, as most else can be managed online.
Tuition and housing costs aside, there are still a number of expenses that necessitate the use of a checking account. The occasional weekend trip, basic personal expenses, or a work-study job on campus are a few of many activities that will force your student to start some sort of budget management habits. Teaching your child how to manage his or her checking account without incurring overdraft fees is a great stepping-stone for the future.
2. Money management: No excel worksheet needed
The average student loan debt for a graduate in 2012 was around $27,000. Whether or not your child’s education costs will be covered by loans, grants, scholarships, college savings, or a combination of the above, keeping your student aware and involved in the payment schedule is a place to start responsible financial habits.
This does not entail leaving your student out in the cold to deal with complex financial aid issues, but instead giving them some additional responsibility. This can be as simple as making tuition payments themselves (on time) or being in charge of paying for housing each month. If that seems like too much to handle from the get-go, consider instead making out a small home utility bill such as cable or internet in your student’s name to get the same benefit of building responsible and timely payment habits.
3. Plastic: Put away those scissors for now
Due to new regulations passed in 2009, banks are now prohibited from passing out free water bottles, t-shirts, and other goodies on campus as recruiting efforts to get students to sign up for credit cards. So while you don’t have to worry as much about your student coming home on their first Thanksgiving back with a pocket full of plastic, there is still good reason for concern. Start building good credit habits early, as when your child reaches the age of 21 they can apply for credit cards without a co-signer.
There are a number of benefits to helping your student build credit. A high credit score will help them once they are out in the real world signing apartment leases, getting credit history checked by employers, and applying for car loans. Credit cards of course have their pitfalls. They have the potential to be widely misused if not grounded in the fact that plastic is indeed spending real money that must be repaid in full. In order to fully understand this, your student should know what the terms minimum payments, annual fees, and APRs mean at the very least.
If you have allowed your high school graduate to piggyback on your existing credit card, remember to keep a close eye on the account, as anything they do has the potential to hurt your credit history.
The tips above are a great starting point for beginning a conversation between you and your college-bound senior. Start small, and most importantly communicate and be available to guide your child as they navigate tricky financial waters in college.
John Gower is a writer for NerdWallet, a personal finance website dedicated to helping consumers find the best free checking account, high interest savings account, rewards credit card and more.