What to say to your college freshman (about money)
Sending your newly minted college freshman off to college can be nerve-wracking. You want to give your child the best possible start in life, but sometimes it’s hard to know what to say. What words of advice will best prepare them for the real world?
Some parents urge their children to follow their passion. Others advocate choosing a practical major that will lead to a high-paying job. But regardless of the path your child chooses, you can never go wrong with some sound financial guidance.
In one survey, hundreds of parents with college grads offered advice for parents whose kids are just starting college. One advised parents to “teach them how to manage their money and don’t always just give it to them.” Another suggested letting kids “do as much of the real-life living as they can, like paying bills, rent, etc.”
Most college students live in a financial gray area where they’re still getting help from their parents but making their own day-to-day decisions about money. The choices they make now can have a long-term impact. Having the money talk can help them avoid the most common money pitfalls college students face. Here are a few key topics to cover:
How to budget
Students typically get a financial aid disbursement at the beginning of each term, and they have to make it last for the next three months. Without basic budgeting skills, they risk spending too much and running out of money halfway through the term.
Help your college student formulate a basic budget. Tally up their expenses, subtract the total from their income and discuss strategies for stretching the rest out over the whole term. Now is also a good time to discuss spending priorities and explain the difference between necessities that must get paid, like rent or utilities, versus discretionary spending on things like pizza and Netflix.
How to use credit responsibly
Indiscriminate charging can lead to all sorts of trouble, but avoiding credit cards altogether will put your child at a disadvantage down the road when they want to apply for a lease, take out a business loan or buy a home. That’s why it’s important to give your college freshman some guidance on how to build credit without taking on too much debt.
Explain to your child what a credit score means and what factors affect it, like making payments on time, and show how to monitor a credit report for changes. Discuss best practices for credit card use, such as paying more than the minimum payment each month and not charging more than one can comfortably pay off. If you’ve co-signed on your child’s credit card, set clear rules about when to use it and who’s responsible for paying the bill.
How much help they can expect from you
Whether you plan on pitching in for expenses or expect your freshman to stand on his or her own two feet, it’s important to be clear from the outset how much you can help. Discuss what you’ll be able to contribute, and set up a system for doing so.
“It’s better to set up a budget with a regular allowance distributed either by month or semester rather than simply doling out money as things come up,” says Karen Levin Coburn, co-author of “Letting Go: A Parents’ Guide to Understanding the College Years.” “That way, the student learns about budgeting and keeping track of expenses.”
What to do if they get in a financial pinch
College students need space to make mistakes and practice picking themselves up again. But it also helps to have a playbook for when things aren’t going their way. Talk to your child about what to do if they make mistakes like overspending or forgetting to pay their bills. What are their options if they run out of money? What steps can they take to get back on track?
Above all, keep the lines of communication open. When finances go awry, you want to hear about it while the problem is still small—not after it’s had time to snowball.
“Frank discussions about family finances can go a long way toward establishing mutual understanding and realistic expectations for students and parents alike,” Coburn says.