What to Tell Your Kids About Money Before They Leave for College

This guest article was written by SuretyBonds.com as a part of their Surety Bond Education Program. SuretyBonds.com is an agency that issues surety bonds in all 50 states. The agency works to provide both consumers and professionals tips for achieving financial success whether at work or at home.

Your kids are moving out of the house to strike out on their own, and you’re understandably apprehensive about the situation for a number of reasons. We all know that some are more financially independent than others, but no matter how responsible they have been so far, there are a few things they need to understand about managing money—whether it’s theirs or yours.

Student Loans

While the temporary non-accruing interest can be appealing for students looking for some extra spending cash, insist that they borrow only what they absolutely need.

Maxing out non-interest bearing student loans may be an easy way to access additional funds immediately, but getting into this habit can mean your student might be paying back $100,000 or more in loans over a 20 year period once the interest starts to kick in.

Credit Cards

Tell your student not to worry about keeping up with the Jones’. They’re probably going to meet a lot of people their age who have a lot more money than they do, and that’s fine. That’s how the world works.

There’s a time and place for being flashy and making excessive purchases, and that time comes when you’ve established yourself as a successful professional who makes a consistent income—not when you’re in debt and unemployed.

The credit card situation becomes more complicated when you throw in the unemployment factor. Some students may not be able to hold jobs during college due to the nature of their studies (such as those who study law or aspire to get into a top medical program).

You’ll need to discuss the reality of whether it’s acceptable to get into debt now with the intention of paying off debt once a high-paying career has been established.

Paying Bills

Tuition. Rent. Utilities. Cable. Insurance. And of course potential student loans and credit card bills. You’ll want to be on the same page with your student about who is paying for what before they leave.

Maybe you’ll pay for tuition and rent, but they have to earn their own spending money. Or maybe you’ll give them a set monthly allowance for them to use as necessary and require them to come up with supplemental funds.

Prioritizing and Budgeting

How students choose to spend their money in college can affect the way they view money for the rest of their lives. When shopping, advise your student to ask themselves whether they actually need an item. If they think they need it, ask them to consider whether they could live without it.

Although they probably wouldn’t want to, asking these simple questions when shopping—even if it’s just for groceries—can be beneficial.

Another spending trend among college students—and many Americans, for that matter—is to overindulge within the few days of getting paid. This can lead to a lack of funds for the rest of the month, which can be uncomfortable to say the least. Introduce them to the concept of a no-spend weekend to help their limited funds last longer.

Saving and Investing

Nobody likes living paycheck to paycheck, and getting into this habit is especially easy during the college years when so many students are more concerned about having a good time than planning for the future.

Even though saving during such a financially restricting time might seem out of the question for your student, remind them that even saving a little is better than nothing at all.

Encourage them to get a summer job and then help them invest some of the money in low-risk options that allow them to access their money should they need it.

Comments

  1. My fav questions for youngsters are:
    - how can i make it (whatever it is) without money?
    or if that’s not possible:
    - how can I minimize the amount I need for it?
    In the hood at least part of the price can be taken for some service. ;)

  2. Here are my tips:
    1. No matter how cool that free t-shirt is, it’s not worth signing up for a credit card.

    2. Good Friends don’t always make good room mates.

    3. A part time job can also be a source of free or discounted food if you work in a restaurant. (Me and my roommates all worked at different restaurants and our fridge was always full of leftovers)

  3. Very timely message for me with a high school senior. Fortunately, he already knows a lot about the value of working, saving, and spending carefully. I do worry about the lure of “invisible money” (credit cards) for college students. This delayed paying for instant gratification is a hard concept to grasp until you experience it first hand.

  4. Great idea! As a parent, I prepared my kids throughout their childhood to be ready to go on their own. They are adult children and successful on their own. In September, I wrote an article on my blog called “How to Teach your Children about Money?” to share some of my thoughts with others.

  5. When i was in high school – even before I could drive – my parents worked with the bank to get me a Visa debit card that was attached to my checking account. This gave me a taste of ‘using credit cards’ though I was really just paying case. Seeing how my spending impacted my checking account was a real good life lesson for me. By the time i got to college i was very protective of my money! :) I firmly believe that the more education and knowledge about money kids are taught younger, the more they will be benefited when older.

  6. All very good tips! My youngest will be going off to college next fall, and even though she is only going 35 miles awy, it will be an adjustment!
    She is attending a state school with a scholarship for tuition, but she will have to have student loans for her room and board. We have looked very carefully at her options, as she wants to come out with as little student loan debt as possible.
    She will be going to school in a major metro area, so she should have a better shot at finding part-time work that is in her field. She has been having difficulty doing that while at home (in our little hick town!) That will hopefully give her some cash flow!
    Our kids have always had to pay their own cellphone bill and the extra gas they want (we paid for gas to drive to and from school).
    Bernice
    I need to take to heart about going to bed early to read! I ahve been staying up way too late with my laptop!
    Can’t wait til January!
    Bernice
    http://livingthebalancedlife.com/2010/you-cant-change-everything/

  7. My son’s a senior in high school right now, so I was happy to see this post. I think he has some good money habits going (especially sending 15% to long term savings right off the top) but this post pointed out one thing that could be an issue. (And it’s something I recognize in myself too.) That is:

    “Another spending trend among college students—and many Americans, for that matter—is to overindulge within the few days of getting paid”

    Gonna have to explore that one in more detail.

  8. The point about not taking out student loans, if possible, or just keeping it to a minimum is a must. I have a friend from college, who had to take out around 40K in loans. His payments run at about $550 a month, and so put a huge strain on his budget each month. And that’s just the minimum payment. Student loans can be seen as an easy way to go to college, but they can have huge impacts down the road.

    One thing he hasn’t tried is consolidating (he has three total). This is definitely a positive step toward reducing the minimum payment each month.

  9. Hello Frugal Dad,
    Thank you for sharing this information. Sending your children off to college is never easy, especially with so many financial traps out there, but teaching the importance of good credit is a start. Getting your credit score is a great ‘first step’ in understanding your credit. But it’s just a first step. Your credit score can change on a daily basis and it’s critical to be proactive and aware of what affects your credit score. Oftentimes, your score is one of the aspects that creditors use to determine the interest rate you’ll pay. It’s pretty serious stuff.
    – Stacie M., Director of Online Marketing

  10. These are great ideas! It seems like college students are often short on money. I like the idea of making things clear before they head off to school – about who will pay for what.

    I also worry about them getting into the habit of running out of money, then borrowing from parents – this can become a cycle that might later end up with a dependence on credit card debt.

  11. The point about not taking out student loans, if possible, or just keeping it to a minimum is a must. I have a friend from college, who had to take out around 40K in loans. His payments run at about $550 a month, and so put a huge strain on his budget each month. And that’s just the minimum payment. Student loans can be seen as an easy way to go to college, but they can have huge impacts down the road. One thing he hasn’t tried is consolidating (he has three total). This is definitely a positive step toward reducing the minimum payment each month.

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