Freshman year is the first time many college students are forced into independence. This includes managing money, planning budgets, monitoring student loans, and setting up a solid financial foundation. Here are several steps parents can take to ensure their students’ financial success and prepare them for life without mom and dad.
1. Have Them Fill Out Yearly Paperwork
Many parents of college students take it upon themselves to fill out important paperwork like FAFSA applications, taxes, and scholarship forms. While this ensures it gets done, it doesn’t show the student how or even why they need to process these forms.
If you’re not ready to let go of control completely, set up a time for both of you to do the paperwork together. Go through each question and explain your answer. You can even do this with an accountant. Let the student ask questions and encourage them to take over when they start to figure it out.
2. Help Formulate a Budget
Helping your student formulate a budget opens the door for a teachable moment. There are some very simple budgets out there that can be managed online (Mint.com) or via a spreadsheet.
Another option is to show them how to do the envelope method. The student cashes out their paycheck (or allowance check) each pay period, then divides their money into envelopes for each of their expenses. For example, a $500 paycheck may be divided into 5 envelopes: $80 for gas, $100 for car insurance, $50 for school supplies, $100 in entertainment, and $170 in savings. This way, they can see just how important it is to pay off necessary bills first before “paying” themselves.
3. Set Up Independent Bank Accounts
A bank account is only worth it if the student can access it easily and maintain it on their own. If your student is studying away from their hometown, be sure to set up a bank account as soon as they reach their new school. Many medium and large size colleges now have banks that operate inside the campus making them an attractive and convenient choice. They also typically provide student bank accounts which are low on fees and easy to understand.
4. Make Savings a Priority
And don’t forget to set up a savings account as well! Teaching students about savings now will help them understand the importance down the road. Many times, college students are so focused on what comes next that they don’t process the cost of retirement or even small emergencies like replacing a car or going to the hospital.
The savings account should be the first step, as well as budgeting for savings as another. You can also consider gifting them books on saving in college that breaks down small steps they can take now. If you’re knowledgeable, help them understand the difference between retirement accounts as well as investment options. It is never too early to instill financial literacy.
5. Check In Regularly On Student Loans
Finally, don’t forget about student loans. If your student needed them to pay for college, they most likely have forgotten about them (or pushed it out of their mind). When they are home from break, take a night to log in to their online account and show them how much interest has accurred. Encourage putting some of that money from savings into the student loan account or to set aside a part of their personal budget to pay down the debt despite them being a student.
These are just a few of the steps you can take when talking money in college. By understanding the basics of financial management and having honest and open discussions about the future, your student will be on the road to financial success.