If you have a newly-minted high school graduate in your house, you might be collectively exhaling a sigh of relief. Well, don’t get too comfortable. Now is the time to have “the talk” with your soon-to-be college freshman—of the credits and debits variety. The college experience is one of many “firsts” to adulthood. It is the ideal time to set your child on the path to being fiscally independent and responsible. Your participation as a parent in the process should be one of partnership.
Here’s a list to consider and spark conversations. Begin the conversation by outlining necessary expenses and a budget. In each case, decide who will be responsible for funding (for example, does this money come from you or your child’s savings account?); how much will be allocated; and the frequency of these expenses.
- Books and other school supplies
- Transportation (if a car goes to college, include insurance, gas and maintenance)
- Discretionary and/or unexpected items
A joint checking account provides access to cash for your student and oversight for you. If such an account already exists, is it with a bank that has ATMs near your student’s college or residence? Think about how the account will be accessed and if close proximity to an ATM or branch is important.
Don’t keep a large balance in the checking account. Use the budget as a guide and make deposits, either monthly or bi-monthly, to cover budget items. This helps establish the rhythm of a paycheck and provide an opportunity to harmonize income and outflow. Ask the bank about establishing either a savings account or credit card that offers overdraft protection in the event of a budget malfunction. If an overdraft occurs, use the opportunity to fine tune the budget or encourage fiscal restraint.
Applying for a credit card in your son or daughter’s name offers a great opportunity for them to begin using credit in a smart and thoughtful way. Take control of the search and start before the barrage of credit card solicitations begin. A good place to start is with the same bank as the joint checking account. Beyond providing overdraft protection, a credit card can be used for larger, infrequent purchases (like books), transportation for trips home, or emergencies. Your student should be responsible for making the monthly payment, even if the charges are expenses you agree to cover. Make a deposit to the joint checking account so the money is there when the bill comes due. Building a good credit score requires appropriate use of credit and the discipline to repay it. Give your student the responsibility and opportunity to exercise both. Lastly, and more importantly, don’t forget to include personal data security in your discussions. With everything accessible via online or mobile devices, it is imperative that your child understands the importance of securing personal and financial information.
Once the necessary accounts are open, and funding is in place, your oversight begins. Review account activity as often as you deem necessary, but at least monthly, as spending patterns are being established. Have regular conversations with your student about their budget and fine tune it as the school year goes on. Think of this as “Adult Life 101”. It can be an easy “A” with a rich payoff for years to come.
Wine and Cheese Event
The Women’s Roundtable: Taking Charge of Your Financial Future
Wednesday, September 18, 5:30 – 7 pm
Bell Investment Advisors’ Oakland office