According to those in the financial industry, students graduating high school often do not have a high enough level of financial literacy to allow them to manage their money well in college. Even the students realize they are not prepared. But as a parent, you can help. In fact, according to a study conducted by T. Rowe Price, parents have the most influence when it comes to managing money in real life, even among students who took personal finance in school. Here are some tips for getting your future college student off on the right foot.
Begin With a Budget
It might sound simple enough, but many teens do not know how to establish a budget. As a result, sit down with your student and talk about college and what expenses they will have while in school, such as books, food, travel, entertainment, laundry, and so on. Then, take a look at how much money they will have access to. Do they have enough to cover their anticipated expenses? What needs to be cut out? Once they have a budget in place, encourage them to keep track of everything they spend money on. This is the safest way to avoid overspending and to become aware of where their money is going each month. It also is a great way to identify if they are spending too much money in one area. Eating out too frequently is a common culprit for overspending among college students.
Set Clear Expectations
Be very clear from the beginning about how much financial support you will provide your student. For instance, if you intend to cover tuition, room, and board, but expect them to cover expenses like books and entertainment, discuss those details in advance so that there are no surprises. Additionally, if you plan to add money to their checking account or give them access to a credit card, be sure you explain your expectations very clearly. In other words, let them know what limits they have and what you will pay for and what you will not pay for. When it comes to larger purchases, students should be encouraged to save up for what they want rather than you purchasing it and allowing them to slowly pay you back.
Open a Checking Account
Having a checking account with a debit card is a good way to encourage teens to stick to a budget and spend only what they have. It also teaches them to become self-disciplined when it comes to money. This way, they are not tempted to spend beyond their means like they might with a credit card. It also encourages better budgeting skills and helps ensure they won’t end up with high debt, which sometimes happens with credit cards. Just be sure your teen understands how the bank processes transactions. And, if possible, sign them up for overdraft protection. If you plan to put money in the account, be sure they know when it will be there and how much.
Raise a Saver
At an early age, it is important to instill in your teens the importance of saving their money. If your student has on-campus employment, be sure they try to save some of the money they make. They also will learn the importance of delayed gratification and saving up for things that are important to them, like purchasing a car or going on a trip. What’s more, if they learn to have a little cash saved, they won’t experience as much anxiety and stress should something unexpected happens and they need access to cash. Hopefully, they will be able to access their savings account to cover the unexpected expense.
Use Credit Cards Wisely
Credit cards are a valuable resource, especially if your student has an emergency. But without careful use, they can create all types of issues for you and for your student. Be sure that your student understands that credit cards must be used responsibly. In other words, they still must stick to their monthly budget when using the card and the balance should be paid off every month in order to avoid high debt and costly interest rates. If there is no money to pay off the credit card charges, then they should not use the card unless it is an emergency.
Look for Student Perks and Inexpensive Entertainment
Going to expensive bars or eating out a lot can be tempting for students. And while doing this once in a while is understandable, students should look for less expensive forms of entertainment. For instance, they should look for campus activities that are free for inexpensive. What’s more, many colleges offer advantages and perks for students and all they need to receive them is to have a valid student ID. Using a student ID to receive discounts on books, food, supplies, and more is a smart move and helps students stretch the limited funds they have. Many colleges even offer a list of participating establishments on their website. Be sure to do a little research in advance and take advantage of the savings.
Eat at Home or on Campus
Typically, students either live in a dorm with access to a meal plan, in an apartment with a small kitchenette, or at home with their parents. As a result, they have consistent access to food that is not only less expensive than eating out, but also can be healthier. But a lot of college students spend a large portion of their money eating out with friends. While eating out can be a fun treat, it can add up very quickly. This is not to say they should never eat out, but it should not be an everyday occurrence. Instead, encourage your teen to include eating out into their monthly budget and then make a commitment to eating healthier other times.
Consider On-Campus Employment
Many colleges offer work-study programs as part of their financial aid packages. This extra money might help offset tuition expenses, or it might provide a little extra money needed to cover expenses like food and books. The key is to find something that fits within your student’s course schedule. Ideally, your student should select on-campus employment before they get to campus. The college’s open jobs will go quickly once they are posted. Not only will employment require them to manage their schedules, but it also will instill a sense of responsibility while reducing the likelihood of procrastination.
Plan Ahead
Many college students do not realize that the financial choices they make when they are in college will affect their future finances as well. Remind your student that college is one of the biggest investments they will make toward their future, but they also do not want to graduate with a lot of debt or without any savings to get started. So, encourage your student to plan for the day they graduate. Have very frank discussions about college loans, credit card debt and savings accounts. Your student needs to realize that they must plan for the day when they will be out on their own. And while they may not be able to save a lot of money while in school, they certainly can avoid running up credit card debt and taking on more student loan debt than they can handle. Ideally, students should not have more student loans upon graduation than their starting salaries.
A Word From Verywell
Remember, college is ripe with new experiences, and although it is important for teens to get involved with on-campus activities and meet new friends, it does not require them to spend beyond their means. Make sure your teen has basic financial skills and understands the importance of taking their spending and saving habits seriously. With guidance and practice, they will become financially literate—a life skill that is vital to have in place for the rest of their lives.
