My social media thread recently has been filled with pictures of high school graduations. Beaming parents, excited kids, caps and gowns, parties...they’re all there, along with announcements of what comes next. For many, college is on the near horizon. Soon, my friends and clients will be dropping those excited kids off. And while I know they’ve spent years adequately preparing their kids academically and socially for what’s to come, I can’t help but think they’ve missed a huge lecture: the money talk.
I remember vividly my first days on campus at Western Michigan. I went to the local bank, by myself, to open my first checking account. I felt accomplished the first time I wrote a check for my half of the phone bill. Managing money was easy. The cash I had in my pocket, or could withdraw from the bank, was all I could spend. There was no such thing as a credit card for kids.
The game has changed. The first days on campus today mean lots of credit card reps tempting kids with cool freebies just for signing up for their cards. Free food, free t-shirts, free trips, free whatever...the list is endless. I can only imagine myself at that age. My parents never warned me of the dangers of getting in over my head with credit cards, so I’m quite certain I would have scooped up all the cards I could get in exchange for free meals and vacations. Ask yourself: Does my child know better?
It’s time to have ‘the talk’ with your college student about money. Here are a few things to remember:
Start with the basics.
High schools used to teach the concepts of writing a check and balancing a checkbook, but those basic skill lessons have largely gone by the wayside. If you haven’t already, show your child how to conduct basic banking tasks and how to create a budget. Explain the importance of paying bills on time and avoiding overdrafts, which can be quite costly.
Ensure they have a healthy perspective on credit.
I won’t go as far as to say credit is a four-letter word, but a credit card in the hands of a kid away from home for the first time can be a dangerous thing, particularly if they obtained the card in their own name. The idea that they can spend money on whatever, without you knowing, and then only make a minimum payment later (or skirt the bill altogether), is a strong temptation. As adults, we know that’s dangerous practice. As 18 year olds, they don’t. Be sure to have that conversation.
Are you planning to have your child be an authorized user on your credit card? You’ll have to set some ground rules. Is this just for emergencies? Do they need verbal permission from you first to use it? Or, can they use it once a month for a modest dinner away from the dining hall? Whatever you’re comfortable with is okay. Just make sure your child understands it.
Who pays what?
Avoid the hassle and fights to come and lay out clearly what your expenses your child is expected to manage at school. For example, when I went off to college, my parents covered tuition, books, and room and board costs not covered by financial aid or scholarships. That’s it. I was responsible for my phone bill, my car, and having my own “frivolous” spending money. Every family does it differently, and that’s fine. Just make sure your child understands what’s expected so they can properly budget and find a way to make money at school, if necessary.
And speaking of budgeting…
In this age of technology, there are hundreds of apps and online tools to assist in creating a budget. Still, some basic know-how in basic budgeting is essential. As your child takes control of their finances, encourage them to do the following:
- Track spending.
You can only make a budget if you know what you’re spending money on. Before your child heads off, have them keep a spending log for a month or two and record every penny spent. Is your child eating lunch out with friends everyday? A written account of that total amount will likely shock them.
When people first start budgeting, they often start by cutting out all the fun. That’s not usually necessary. Lunch with friends, for example, can still happen, but may need to be cut down to just once a week to save money. Encourage your child to see that budgeting isn’t about eliminating the joys of life, but better allocating the money they have.
- Make a list of income and expenses.
Have your child list their income from a job, scholarships, etc., and then list the expenses they’re expected to cover. It’s helpful to separate expenses into categories like food, entertainment, clothing, etc., as it makes it easier for your child to see where “trimming” is needed.
Is your child going to rely on savings only? Then figuring out a monthly allowance is critical so the money doesn’t dry up too quickly.
- Plan to adjust as you go.
Expenses and income may change as the year progresses. As they do, encourage your child to revisit and adjust their budget.
Now stand back.
Now is not the time to hover. You’ve imparted your wisdom, so now you need to stand back and let your child figure it out, even if that means they take some lumps along away. If your child runs out of money and it’s not an emergency, give them time and space to figure out how to make more. Sure, they’ll have to forego some fun for a few weeks, but they’ll have a better grasp of how to manage money in the end. And isn’t that more important?
Congratulations and best wishes as you move into this next phase of life!