August, 2008
Top 10 Money Moves for Today’s College Freshman
With average college tuition up 6.3 percent at private schools and 6.6 percent at public schools this past year, money management is a bigger issue than ever on college campuses. That’s why it’s good to send your freshman off to school with a 10-point plan on how to best manage his or her money.
1. Take baby steps with credit: It’s one thing for a teenager to use his parents’ credit card while still living at home. It’s quite another when he gets his first taste of freedom hundreds of miles away from home. Parents may co-sign the student’s credit card but keep it in the student’s name. That way, parents will know when financial missteps occur. That can be a strong incentive for the student to keep his credit rating clean. Most important: Parents should do whatever it takes to make sure their child doesn’t sign up for any credit cards on campus.
2. Bank smart: Students need to get some familiarity with the banking system before they head to college. Kids generally should set up a checking account on campus, but talk to them about debit options and how banking fees (particularly for overdrafts) can eat away at their money. Also ask your child to ask the bank about direct-deposit options if you’re planning to deposit money for tuition or agreed-to spending needs. You want your child to be independent, but if necessary, make it a joint account and check those balances online.
3. Work with them to set up their first emergency fund: A young person should get used to the idea of savings and reserves for unforeseen events such as emergency trips home or related expenses. Make it clear that late-night pizza and mochas are not an emergency.
4. Put the student in charge of maintaining financial aid information: Each year, the FAFSA (Free Application for Federal Financial Aid) is due in June. State applications are due earlier. While parents need to run the financial aid process, students need to be equally aware of how their education is paid. You should file the form whether or not you think your child may be eligible, and your child should be searching for scholarships at all times. It might also make sense to take your child to your tax preparer to make sure you’re taking advantage of the child’s “tax capacity” and other income tax opportunities. It will be a good learning experience.
5. Make them budget: If they’re leaving for college with a new computer, consider giving them personal finance software to track their expenses. Make sure the computer has a security password. Work together to determine necessary realities about everyday expenses, tuition and financial aid. Tell your kid that when he or she comes home at Thanksgiving, you’ll sit down again to review those figures and make reasonable adjustments. You obviously need to trust your kids, but you might want to do this for as long as it takes them to develop solid and consistent money habits.
6. Schedule a holiday budget and credit check: When the triumphant freshman returns home for the holidays, schedule some R&R, home cooking and the first reading ever of their fall budget figures and their first credit reports. Since credit reports can be ordered online, parents and student should sit down with each of the child’s three credit reports from Experian, TransUnion and Equifax and review them for activity and errors. Everyone is entitled to one free report from each of the agencies each year; go to http://www.annualcreditreport.com .
7. Help them open their first IRA: Get some advice on this from a trusted personal financial planner – but if your 18-year-old child is earning wages by working part-time at school, at home during breaks, or for your own company, have them open a Roth IRA in a growth fund. Make sure they understand that this is essential to their future savings so they don’t cash it in prematurely.
8. Discuss identity theft: Personal financial data left on laptop computers, cell phones and other electronic devices can be readily stolen on campus or in a dorm or roommate environment. Tell your child to keep all paper records in a safe place and use passwords to keep all their digital information safe.
9. Get them networking: Internships and jobs in their chosen field during summer breaks can give your student a head start on their career path. Encourage them to research these opportunities so they’ll be in the front of the line when it’s time to apply.
10. Handle mistakes the right way: Most kids will make money mistakes in college. If they overdraw a checking account or overdo it with their credit card, make the criticism constructive but firm and always come up with a corrective plan that you’ll work on together.
August 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.
The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.
