College is more than a formal education. It’s a time for kids to take responsibility for their finances.
Many college freshmen have had minimal experience dealing with money. Typically they come from living in a parent controlled world where they have rules, and they know their limits. College offers a sense of freedom that could cause financial problems if not handled correctly. Credit cards and shopping could set a college students future off to a very bad start.
Before the big send off, experts suggest parents sit down with their kids and talk finance. Below are the three main financial products/practices that every college freshman should know going into their first day.
Get a free checking and savings account.
Look around your community for financial institutions that cater to students. When signing up for a checking/savings account, look for convenience and fees. Make sure the account comes with online/mobile banking with the ability to transfer funds and no attached fees for ATM withdrawals.
The importance of balancing a checkbook
If your student has not had to balance a checkbook before, or has never had a checking account before, now’s the time to learn – even if it comes with online banking. Debt card transactions made as credit do not always show up immediately in online banking. Plus, there’s also pending transactions to look out for and the simple reality of using technology. Yes, it’s convenient but unfortunately, it’s not always reliable. This is why it’s so important to learn how to balance a checkbook and backup your budget. It’ll take practice to learn how to keep track of transactions but its better (and cheaper!) than dealing with overdraft and penalty fees.
Credit cards seem like an easy way to get through college. Many college students think “I will be making a lot of money when I graduate, so I will just pay them off when I get a job”. This is the wrong way to think about credit cards! Credit cards can put your student in serious financial problems. Spending can become habit forming, and could hurt their chances in the future of finding a place to rent, buying a house, and sometimes hurt their chances for landing that “dream job”.
Unless your student has a strong sense of money management already, it may be best to leave the credit cards alone for a while. When credit cards are used wisely, as in the case of an emergency, and then paid immediately, they can be beneficial. How each person perceives “an emergency” is the real issue.
Most students will need to set a budget for each month. Having a set budget will allow them to gain confidence as they learn to manage their own money and expenses. Soon, they will need to be doing this on a larger scale with rent, utility bills, car payments, student loans, etc. If they learn the skills now, they will manage money better later.
Budgeting can be hard for a new student because it’s a learning process. Budgeting is all about establishing your limits and then finding a way to balance your life in between them. Like we’ve said before, some college students are coming from a parent controlled environment with limits and restrictions already in place. Now, it’s their turn to create and establish financial boundaries. Try your best to be patient as this will most definitely require some trial and error.
Beware of the starving student syndrome
This is a real phenomenon because many students arrive on campus with champagne taste on a ramen noodle budget. The adjustment is hard and the struggle is real. Learning to manage a monthly grocery budget can help reduce this problem and can be practiced before they leave.