In a few weeks millions of young “adults” are heading off to college. The biggest financial concern of theirs (and their parents) is usually making sure tuition and living expenses are covered.
But there are some other smaller-but-still-important money moves that should be considered, both to protect the kids from potential dangers, and get them off on the right financial foot.
Plan the spending
For many of these students, moving out to go to college represents the first chance they have to spend money without the oversight of their parents—for better or worse.
Therefore it’s important for the parents and the student to sit down and discuss what money will be coming in from a job, parental assistance, or financial aid, and what will be going out for housing, food, utilities, entertainment, transportation, etc.
Add up the income against the outgo on paper to make sure that there isn’t a deficit, and to show the kid that even if there is a potential surplus, it may not leave much room for extra discretionary spending.
Once the student is sufficiently informed and understands, it’s up to the parents to decide how closely they will monitor the money coming in and going out.
Some moms and dads (especially those of freshman) might choose to obtain authorization to peer into (and add funds to) the student’s checking account.
Others might decide to choose the “trust, but verify” option, using a spending monitoring app like Mint (www.mint.com) that will allow both the student and parents to see where the money is going.
Finally, some brave parents will adopt the “sink or swim” method, keeping eyes and hands off of the student’s money. But these folks should make it clear to their children how willing they are to bail the kid out of financial troubles, if at all.
Credit cards for kids?
As part of the parent-student financial discussion, the subject of “credit cards” is bound to come up. It might be because the student wants the freedom or status of his own piece of plastic, or maybe the parents are interested in having a way for the kid to pay for larger expenses, travel costs, or emergencies.
There is a right and a wrong way to go about this. The wrong way is to allow the student to sign up for his own card and be responsible for any charges and repayments.
If he puts more on the card than he can quickly repay, he could end up paying a double-digit annual interest rate on the balance, making it even more difficult to repay.
If he misses a payment or two, it could damage his credit score severely enough to affect his borrowing power, insurance costs, and employment prospects for many years into the future.
A better idea is for the parents to put the student on one of their cards as an “authorized user”, with the understanding that the kid can only use the card for expenditures and amounts that have been approved in advance by the parents.
Once he proves his proficiency at using plastic and promptly repaying the balance, the parents may be more open to allowing him to get his own card.
Freeze the kid’s credit
There are two reasons concerned parents should discuss freezing their students’ credit report, especially when the students will be on their own.
The first and most obvious one is to prevent identity theft. It’s hard enough to prevent a kid’s Social Security number and birthdate from getting in to the wrong hands while she lives under your roof. It’s worse when she’s on her own.
The second more subtle reason is to prevent her from obtaining a credit card that she doesn’t really need, and you would prefer that she didn’t have.
You can begin the credit freeze process by going to tinyurl.com/freezecred, and looking up the procedures by the student’s state of residence.
To check for other credit activity in the future, you can visit annualcreditreport.com to see if the student (or identity thieves) have taken on any new debt or accounts in her name.