Begin Your Child’s College Education With A Lesson In Finance
Managing finances as a college freshman can be an even bigger challenge than navigating an unfamiliar campus or acing a calculus test, but parents can help new students get off to a good start. You may have found it hard to squeeze in time to talk with your college-aged child about money before he or she packed the car and set off to begin a new chapter, but it's essential that families set aside time for a financial conversation over a weekend at home or holiday break. Consider covering the following topics during this important conversation:
1. "You're spending real money."
Understanding where tuition and other funds are coming from may inspire your child to spend more carefully. Clarify that loans will have to be repaid with interest and while scholarships, grants and gifts may seem like "free money," there are expectations that they'll be used responsibly. If you're providing financial support, be clear about which expenses you are - and aren't - expecting to cover. If your student requests more spending money than you're willing or able to provide, suggest a job or paid internship. These can provide young adults with valuable work experiences and make their "fun money" a bit more tangible.
2. "Budget for surprise costs."
Freshmen encounter many unexpected expenses like club fees, transportation costs and social dues. Tracking these, as well as any regular bills and necessary purchases, can help your child be more prepared in the future. Budgeting is essential, especially since students don't typically have a significant source of income. Warn your son or daughter to avoid wasteful spending habits such as buying expensive lattes or disregarding ATM fees. These may seem like minor expenses, but they add up over the course of a semester.
3. "Using credit is okay, if you do it right."
Though it may worry you to see a credit card in your child's wallet, having knowledge about the importance of good credit and the role it plays in the future purchase of a home or vehicle can help young adults establish financial independence. Explain how credit ratings and interest work, and suggest charging only very small amounts that can be easily paid off on a monthly basis. Advise your son or daughter to view their online statement at least weekly to avoid fraud and overspending.
4. "Don't try to keep up with your roommate."
No matter where your child attends college there will be students who can afford - or who choose - to spend frivolously. Encourage your son or daughter to be conscious of their spending habits regardless of your family's financial situation. If your child decides to splurge on a spring break trip or expensive night downtown, stress the importance of careful saving and budgeting well ahead of time to avoid ensuing debt.
5. "We'll help, but we expect you to be accountable."
Having a child leave for college can be emotionally and financially stressful, and the toughest part for many parents is deciding when to intervene. If you fear your son or daughter is making poor decisions - including financial ones - start by addressing the situation. But don't be afraid to let your child struggle a bit if the financial mistakes and consequences are small enough to correct without long-term damage. Learning the value of money is often easiest when it's not always readily available and young adults can take responsibility for their own successes and failures.
Rocco is a Private Wealth Advisor with Ameriprise Financial Services, Inc. in Southampton, NY. He specializes in fee-based financial planning and asset management strategies and has been in practice for over 20 years. Advisors is licensed/registered to do business with U.S. residents only in the states of NY, NJ, TX, MA, PA, NC, NH, UT, NV, CA, NM, WA, VT, MS, MD, RI, FL, MO, SC, GA, MN, CT, AZ. Ameriprise Financial Services Inc., and its representatives do not provide tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. www.roccocarriero.com