As your child prepares to leave for college, you’re likely worried about them. From living away from home for the first time to juggling classes, college poses unique challenges.
One of the most overlooked issues incoming students face is money management skills. Financial literacy classes are rarely offered in high school, so your child will have to learn how to manage their money for college on their own, leading to stress and anxiety. In fact, a recent study found that nearly half of new college students felt unprepared to handle money.
To help them build essential skills before leaving home, here are some things you should teach your child now:
1. Creating a Budget
If your child is going to college, they’ll have to worry about paying for textbooks, class fees, and the occasional pizza. Whether they plan to get a part-time job or not, creating a budget is an essential life skill — and will keep them from overspending.
Sit down with your child and help them create a budget for the upcoming semester. You can use a simple pad and paper to list what money is available and what expenses they have. But for many students, a budgeting app they can access on their smartphones will be more valuable.
Mint, EveryDollar, and Albert are excellent apps your child can use to create and manage a budget. These apps sync with their bank accounts and credit cards and organize transactions by category, such as dining out or transportation. By reviewing the app, your child can identify areas where they need to cut back so they can stay on track and save for future goals, like buying a car.
2. Using Credit Cards
Many parents opt to give their children a credit card when they head off to school to use for school expenses or emergencies. While you can add your child as an authorized user to an existing account, they may also be eligible for student credit cards.
However, having a credit card for the first time can be overwhelming. Your child may rack up credit card debt if they don’t understand how they work and how interest accrues.
Review credit card basics with your child, explaining how the APR affects their purchases and how they should aim to pay off their credit card balance in full each month to avoid interest charges.
You can use a credit card payment calculator to show them how rapidly credit card balances can grow over time.
For example, if your child charged $500 to a credit card with a 29.99% APR, their minimum payment could be as little as $20 per month. While that may seem manageable, it will take them 40 months to pay off their credit card balance. In total, they’ll pay back $795.34, adding nearly $300 to their purchase cost.
3. Managing Student Loans
According to The Institute for College Access & Success, the majority of college students graduate with student loan debt, with an average balance of $28,950.
Student loans can take decades to pay off, and the minimum payments can consume large parts of your child’s post-college paycheck. To minimize the impact of student loans, teach your child now about how student loans work, how interest accrues, and their repayment options.
By discussing how loan balances can grow over time, you can encourage your child to keep their college expenses low and reduce how much they need to borrow for school.
You can visit the Office of Federal Student Aid to access free guides, videos, and other resources about managing student loan payments.
4. Saving Money
The majority of adults, let alone college students, don’t have any money in savings. In fact, the majority of Americans don’t have enough cash to cover a $1,000 emergency expense, forcing them to rely on credit cards or pricey loans.
You can encourage your child to start saving money by showing them how small, regular contributions can add up over time. If they have a particular goal in mind, like studying abroad for a semester or a spring break trip, you can work together to develop a plan to save enough money for that goal.
For example, your child could reduce how many streaming subscriptions they have or skip the coffee shop on the way to class.
You can use the U.S. Securities and Exchange Commission’s compound interest calculator to see how much your child will have by the time they graduate if they save a little each month.
5. Opening a Bank Account
If your child doesn’t yet have their own bank account, consider helping them open one before they go to school. They’ll need an account to deposit their paycheck from their college job, make withdrawals, and pay their expenses. Having a bank account can make it easier for them to budget, especially with apps that sync to their online accounts.
A good option is Southeast Bank’s EDU Checking Account.1 There are no monthly service fees if your child signs up for electronic statements, and they can earn $0.10 per qualifying SouthEast Bank debit card transaction, including purchases made online and at brick-and-mortar stores.
The EDU Checking Account only has a $50 minimum, and is available to students between the ages of 13 and 24.
Preparing Your Child for College
If your child will be attending college this fall, now is an excellent time to teach them some personal finance basics so they feel more prepared to manage their money when they’re on their own. By focusing on the fundamentals of budgeting, saving, and tracking expenses, your child can establish good money habits that will last for their lifetime.
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Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.
1Enrollment in monthly eStatements is required to earn the $.10 debit card rewards. Qualifying transactions include point of sale or online purchases or $1 or more using the SouthEast Bank debit card. ATM and cash-only transactions do not qualify for cash back rewards. The Rewards Period begins on the first calendar day after the last business day of the prior month and ends on the last business day of the current calendar month. Regardless of the Statement Cycle, Cash Back Rewards will be paid (credited to the account) on the 1st business day of each month. Customers over age 25 will be notified and moved into a Rewards Checking product. No monthly service fee will be assessed for account holders age 13 – 24 (e-statement required). Overdraft/Returned item fees may apply. Please see the full Fee Schedule for any other fees that may be imposed in connection with this account.