If your kid is heading to college, congratulations to you both on this hard-won accomplishment and exciting new adventure. You are confident that your child is ready to tackle the academic and social challenges college brings, but are you confident that your child knows the financial lessons necessary to start college off on the right financial foot and begin building a strong foundation for a successful financial future?
Being away from home is a tremendous responsibility for kids, especially when it comes to managing money. With the following tips, your college-bound kid will start school with a financial head-start.
Establish a budget
Although you’ve probably recited that money does not grow on trees a million times, kids might not fully grasp the importance of careful money planning like a budget.
“They should understand the differences between income, expenses and savings and the concept that expenses should not exceed income—otherwise, they will accumulate debt and incur costly interest,” says Mark Avallone, Forbes.com contributor and President of Potomac Wealth Advisors, LLC.
Be credit card savvy
The idea of handing over a credit card to your college-bound kid or letting him open one up on his own, is sure to strike fear into your heart. But, when used wisely, a credit card can actually attribute to your child’s financial future.
“In reality, the only way to build good credit is to use it, say by taking out a loan or opening a credit card. Opening a basic card in college—assuming you pay it off in full each month—can help you qualify for better cards with higher rewards (think cash back and airline miles) post-graduation,” reports Time.com writer Susie Poppick. “And being a responsible credit card holder positively affects your credit score, a number that helps determine how good a deal you'll get if you take out a loan for a car or home later on in life.”
Safeguard your identity
Identity theft is not limited to a certain age or income, and teaching your kids how to protect their financial identity is lesson they can apply their entire lives.
“It pays to get in the habit of guarding your Social Security number carefully, and only sharing it when absolutely necessary (that means not at the doctor’s office). The same goes for credit card and banking information,” said Kimberly Palmer, U.S. News & World Report staff writer.
Poppick stresses the importance of locking all electronic devices with a fingerprint key or password.
“Remember that your email is likely full of identifying information. Likewise, try not to stay logged into sites or apps like Venmo or Paypal,” reports Poppick.
Understand banking mechanics
Bank accounts can be complex, so it’s vital that young adults understand the mechanics of account and ATM fees, deadlines, maintaining a minimum balance, how to write and record a check, how to avoid overdrafts and how and when to use their debit cards, advises Avallone.
Savings add up over time, so the sooner you teach your child to save—even if it’s only a small amount at a time—the faster they will build up a nest egg for unexpected emergencies or special trips. No matter your financial expertise, as a parent you can provide a good source of advice about saving and investing, according to Palmer.
Teaching your college-bound kids about money is one of the most important ways you can prepare them not only for college but also for life.