Sending your children off to college with the values and readiness to handle financial responsibilities is a prodigious step toward their own independence and financial well-being. As you prepare for your kids to leave the nest, now is the ideal opportunity to make sure they have the integral financial knowledge and tools to manage money and exercise sound financial decision-making at college.
You can talk to your children about the financial skills pivotal to adapting and succeeding in college by utilizing this checklist to relay the following relevant insights:
- Draft a budget and underscore the significance of monitoring expenses in college: Persuade your children to plan and stick to a realistic budget by having them list savings and spending expenditures. Use the budget form found in the complimentary FPA guide, Budgeting: Managing Your Money with a Spending Plan, to further reinforce the need for your children to track their fixed and variable expenses (i.e. grocery bills, cell phone charges).
- Cultivate awareness of both the benefits and consequences of credit card use: Stress the importance and advantages to building a good credit record, including the increased likelihood of securing a home loan and leasing a car with a favorable interest rate. Also, if you cosign your child’s credit card, you are jointly liable and your own credit can suffer should your child not pay off the outstanding credit card balance on time. Set clear expectations with your children and communicate to them if the credit card should be used for everyday expenses or only for urgent needs. Educate your children to review each credit card bill and make the indicated payment by the due date. Encourage your children to utilize credit responsibly; ultimately preparing them to use own their credit cards once they turn 21.
- Establish campus bank accounts and teach banking basics: Assist your children in opening a bank account and set up separate checking and savings accounts requiring no minimum balance and a simple fee structure. Ascertain your children know how to keep track of their spending and are aware of any related bank fees, including overdraft charges and extra fees to utilize an Automated Teller Machine (ATM) not owned and operated by their bank. Preferably, you should have your children establish an account with debit card access, and even try linking the debit card to their credit card. Create online accounts so your children can check their balance whenever they desire.
- Check insurance coverage to protect risks: Be cognizant that anything can occur at college, thus it is critical to ensure your children have the appropriate health, car and renters’ insurance, if applicable. With the health care reform legislation making it more likely to keep children on your family health insurance plan, it is critical to check with the school to inquire about the premiums and coverage of the college health insurance plan and compare what it offers to having your children remain on your plan. Keep in mind that part- and full-time campus jobs may also offer health insurance for your children. In addition, if your children bring a car to college, make sure you evaluate whether it may be cheaper for them to remain on your insurance policy versus facing higher insurance rates on their own automobile policy. Discuss the financial ramifications to you and your children should the landlord require you to cosign their off-campus apartment and also consider purchasing renters’ insurance for the apartment.
- Wisely budget for textbook and increasing technology costs: You should start planning with your children to manage steep textbook and technology costs through smart comparison shopping. Explain to your children the importance of looking on the Internet for deals to buy or rent books, and even consider purchasing used textbooks at the campus bookstore. Make sure you also prepare in advance a list of essential technology needs and look out for coupons and discount back-to-school sales at local stores and online merchants.
Finally, always engage and consistently involve your children who leave the nest in both college and family financial conversations whenever possible. Fostering an open and positive disposition towards tackling college and family financial situations clearly will help your children mold the financial virtues and responsibilities needed for them to thrive as they become young adults.
FPA member Elaine King, CFP®, CDFA™, is is Chairman of FPA of Miami-Dade and Author of Family & Money Matters, La Familia y El Dinero Hecho Facil. FPA member Philip Herzberg, CFP®, MSF, is President-Elect of FPA of Miami-Dade and Director of Media Relations & Public Awareness for FPA of Florida/Miami-Dade.