Parents need to have a money conversation before they send their college freshmen off to school. Most new college freshmen have never taken a course in money management or personal finance. Personal finance isn’t taught in America’s high schools. And, it’s up to parents to have a money conversation and discussion about being financially smart before their children learn hard lessons on their own.
A recent survey by USAA.com found that 82% of parents are discussing budgeting with their soon to be college student. Parents must have a tough money discussion with their children just like they would discussing their expectations and priorities for their children’s academic studies.A recent @USAA survey found that 82% of parents are discussing budgeting with their college freshmanClick To Tweet
Here are three key topics that parents should discuss with their college bound children during their first year on campus.
Money Discussions Parents Need To Have With Their Children
Building Credit Responsibly
When I left for college, my mother gave me a credit card to use for emergencies. She had me listed as an authorized user of one of her credit cards, and I got one associated with her account with my own name on the card.
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The real issue came from us not having a very good and clear discussion before I left about money and what constituted an emergency. Her idea of an emergency and mine turned out to be vastly different when I started charging lunches with friends, clothes, and a host of other things on the credit card.
“Responsibly managing credit is a key part of the financial education that should be happening at this time of our kids’ lives,” says JJ Montanaro, a Certified Financial Planner at USAA. “To that end, I like the idea of helping our kids obtain a low limit credit card or a secured card.”
Other financial experts don’t recommend parents giving their children a credit card as an authorized user on their card. Others simply think that young adults need their own credit cards in order to help them start to build their own credit history.
Another option is for parents to help their college-bound children apply for a secured credit card to start. Many secured cards require a deposit that acts as the card’s credit limit. Many secured credit cards also report activity to the three credit bureaus, which helps young adults build a credit history for other non-secured purchases later in life.
Be sure to check out a USAA Secured Credit Card that can help you build or improve your credit score. The card from USAA is secured by an interest-earning CD, which you set up when you open the account.
“While you can add them as an authorized user, that approach could increase the potential damage of a misstep,” says Montanaro. “Adding [a child] to my $20,000 limit card vs. cosigning a $1,000 card is potentially less dangerous. The beauty of this sort of arrangement is that you can closely monitor what’s happening while they learn the ropes of responsibly managing credit.”
Or, you can send your college freshman to school with a prepaid debit card. Prepaid debit cards have many advantages to them that could benefit your student.
College is a place to learn both academically and life lessons. One-third of parents surveyed by USAA.com say their children will not have a credit card as they head to college.
Managing your health
For many young adults, college is the first time they will see a doctor without having a parent present. Parents should review with their children the specifics about the family’s health insurance coverage.
Parents need to prepare their children in how to choose a doctor in their local area if they are attending school away from home. College students need to understand the impact of co-pays and how parents expect them to pay co-pays in their absence.
Additionally, many children may need to continue taking prescriptions while at college. How will your child receive refills for medication they are currently taking before starting school? While these do not immediately seem like financial issues, they are part of the money conversation parents need to have with their children before they start school in the fall.
Understanding the Cost of College Tuition
Tuition, room, and board are a big investment for a family. Children need to fully understand the costs and sacrifices that their family makes in order to send them to school.
It helps children understand the complete picture of the family’s finances by knowing exactly what the costs are and the financial burdens placed on the family. Your children should understand how the family is paying for their tuition and fees whether it’s through 529 College Savings Plans, student loans, or other means.
“In a perfect world, the entire education would be funded by grants, scholarships and savings,” says Montanaro. “Unfortunately, that’s not a reality for most people. So, mapping out the sources of funding is important. Focus on developing a plan in which the student finishes college with no more than their first year’s salary in student loan debt.”
Parents also help to set expectations for their children regarding their daily living expenses. Having a money conversation can help to prevent students and families from borrowing too much if student loans are involved in the financing of college.
According to Montanaro, parents should discuss everything from who is going to pay for college, what is feasible, and reasonable costs should be part of the discussion. Additionally, setting expectations can provide financial guardrails as to the plan of where and how to get a college degree starts to come into focus.
Don’t forget to have a money conversation with your college age children. Now is the time that parents need to set their children up for success.
Financial mistakes that young adults make while in college will follow them for years after they graduate.
Have you had a money conversation with your college age children? What topics did you discuss with them about money?