It’s an exciting time for families when teens make the big transition from high school senior to college freshman. Of course, there are many things to do before your child begins this journey, but it’s important to make time to have a conversation about basic money management. Share these money tips for college students to help with the transition to this new chapter of life.
Make a budget and stick to it
Between classes and extracurricular activities, budgeting as a college student may not be top of mind. However, it’s important your child becomes familiar with preparing a budget to manage expenses. Explain the difference between income, expenses and savings, and how they relate to each other.
Point out that expenses should not exceed income or debt will accumulate, including interest. If your teen runs out of money, recommend your teen adjust spending habits. Don’t be tempted to bail out your child!
Get to know how your credit union accounts work
Talk about how a Credit Union account works. Show what fees, if any, are associated with your student’s teen savings account and explain how the account’s complimentary debit card works. Using a debit card helps your teen learn the importance of keeping a transaction record and monitoring accounts regularly so as not to blow the budget they created. And although most banking is done online, students still need to know how to write a check, just in case it’s the only option for payment.
Use credit cards with caution
The minimum age requirement to apply for a credit card is 18 years old. So, don’t be surprised when offers for pre-approved credit cards flood your family's mailbox.
If your teen applies for a credit card, be sure to explain how credit cards work. In addition, talk about the impact of interest rates, and how card balances and interest can quickly accumulate if the balance isn’t paid in full every month. This teachable moment emphasizes the responsible use of credit cards.
Learn the value of a credit history
Talk about the benefits of a good credit score versus a bad credit score with your child. Explain that the higher the credit score, the better the interest rates may likely be on a future loan or possible credit line extension. Stress how important it is to pay bills on time and not carry large amounts of debt. This approach helps your teen shape a positive financial future.
Start saving early
Encourage your teen to focus solely on saving money for big goals like a new car or a trip, but also to handle unexpected emergencies like an auto repair. Even if you’re paying for school and other incidentals, emphasize that emergencies are guaranteed to happen. You may not have the funds to help or you may agree upfront that ongoing maintenance is not your responsibility. Your teen will need to be prepared to cover those expenses.
How do students manage their finances?
Your student can ace personal finance 101 with the help of a good money management app. Encourage your teen to add checking, savings and credit card accounts to the app so the latest account balance information is always available. Remember, data charges may apply if the app is used without a Wi-Fi connection. A service provider can supply more information.
Whether your child is heading to campus or beginning this new chapter locally, make time to talk about money before classes begin.
The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.