If your teenager is starting college this year, he or she will have greater financial independence than ever before. Are they ready for it? Even if you’ve taught your child the importance of saving and being thrifty, are they ready to make good decisions when you aren’t around?
Whether your child will be across the state or on the other side of the country, you want him or her to budget and spend wisely. You also want to instill the importance of safeguarding accounts, cards and personal financial information.
Before your new college student leaves, take some time to prepare them to manage their money.
Create a budget with your child.
The first step for anyone in learning how to manage money at any stage in life is creating a budget. Focus on the first semester (or first quarter if their school is on that system) for now. Some good options for free budgeting apps are Mint, Goodbudget and PocketGuard.
Ask yourself the following questions:
What will your child’s sources of money be? You may still be your child’s biggest source of money. That said, it’s probably not a good idea to give them all the money you think they’ll need for the first semester in a lump sum. Perhaps work out a schedule where you deposit a specific amount of funds every two weeks. Consider the following: Will they have any financial aid money going directly to them? Are they going to be working part-time?
Also discuss with your child how they plan to balance a part-time job with coursework. Many may choose to acclimate to their school workload before taking on work. Also keep in mind that a part-time job could impact their financial aid package. If your child is receiving financial assistance, check with your school’s financial aid office before they take on a job to see what the ramifications could be.
What types of expenses will they have? Include things like books, meal plan, dorm supplies, personal items, gas or transportation expenses, clothes, laundry, and entertainment.
While you’re working on a budget, talk with your teen about ways to save money, like getting used textbooks when possible, pooling expenses with roommates, and investing in (or renting) a small dorm refrigerator to stock up on drinks and snacks rather than relying on vending machines and going to a nearby convenience store or deli.
Life in college is filled with temptations and social activities, so it’s crucial your child learn prioritize essential expenses, and can ensure tuition, rent, utilities and groceries are covered before allocating money for discretionary spending. They’ll also want to set aside of a portion of income each month for savings and emergencies. By establishing these priorities, your child can build a strong financial foundation and avoid falling into unnecessary debt.
Open a checking account.
If your teen doesn’t already have one, he or she will benefit from opening a checking account and learning how to use it before school starts. This is a good time to teach your son or daughter to shop wisely for checking accounts and other financial products just as you do everything else. That means comparing fees and minimum balances.
Look for an account where they can get free ATM access on or near campus. Online financial institutions typically offer a large network of free ATMs.
Note: If your child isn’t 18 yet, you may need to be a joint owner of the account with them (see below on how to open a Quorum checking account for your teenager).
If your child has never had a checking account, teach them the importance of tracking every expense (that’s where budgeting apps become useful). Although most teens prefer to use an ATM/debit card for transactions, it’s a good idea to get a starter pack of checks and be sure they know how to balance their checkbook, and list their check transactions on their app. (Learn more here.)
It’s also wise to set up account alerts that send notifications via email and/or text of low balances, large transactions and other activity. These can help your child keep track of their account activity, avoid becoming overdrawn and find out if there is unauthorized activity on the account. You may want to consider asking your child to have account alerts sent to you as well.
Talk about credit cards.
You may be leery about your college freshman having their own credit card. Thanks to the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act), credit cards can’t be issued to anyone under 21 unless they have sufficient income or assets (or reasonably anticipated income or assets) to make the minimum payment due if they were to use the entire line of credit available on the card. If they do, they can get their own card at 18.
If your child doesn’t have the income and/or assets to qualify for a card alone, but you want them to start building credit and learning to use a credit card responsibly, consider discussing the benefits of a strong credit score (qualifying for large loans, obtaining favorable interest terms on those loans, securing a job, and more) with your child, and adding them to your card as an authorized user. This way, your child can have a card with your credit card number in his or her name. Just remember: you’re still the one responsible for their charges and making payments on the card.
If you do make your child an authorized user, set some clear rules, such as using the card sparingly and making payments on time and in full each month, which demonstrates responsible credit management and will help them establish a positive credit history. Or, start by only having your child using a credit card in an emergency or only after checking with you. As with the checking account, you can set alerts for activity like transactions over a specified amount.
You may also choose to co-sign on a low credit limit credit card account with your child with the understanding that they pay it off every month. Remember that by co-signing, you’re agreeing to assume responsibility for the debt if your child doesn’t pay it. Your credit score as well as your child’s is on the line if the card isn’t handled responsibly.
Help your child prevent theft and fraud.
Talk to your child about keeping their financial information—like account numbers, card numbers, passwords and personal identification numbers (PIN)—private. Dorm rooms are anything but private. People may be coming and going when they aren’t around.
Here are some additional precautions for your child:
- Never leave personal information up on your computer or phone, even for a minute, where anyone can see it.
- Always keep cards, cash and checks safely stored (and locked, if possible).
- Don’t let friends look over your shoulder when you’re using your debit card to buy something or getting money from the ATM.
- Never give your debit card and PIN to a friend to make a purchase for you.
- Learn how to change your passwords and PINs on each account and card so that you can do so right away if you have any concern that someone has seen them.
- Check activity on your checking account and credit card regularly, even if you haven’t used them for a while.
For additional precautions, check out the following articles: Online Identity Theft: How It Works and How to Stop It, How to Tell You’re the Victim of Identity Theft, and Scammers Gonna Scam: The Latest Scams and How to Avoid Them.
Don’t give up on that savings account.
If your child has a savings account, keep that open. Try not to empty it out to pay for school expenses. Even if your child isn’t able to contribute to it during the school year, a summer job will help them continue to build it. It’s always wise to stay in the habit of having some savings tucked away.
Minimize student loan debt.
Student loans can be a significant financial burden (to parents and/or their children, depending on who is taking on the debt). To minimize debt, explore options such as scholarships, grants and part-time jobs to cover educational expenses. Talk to your child about getting ahead of any debt by saving for student loan payments before graduation. They can set up automatic monthly transfers from their checking account to a savings account while in college, to be prepared to start paying off student loan debt as soon as they graduate.
How to open a Quorum membership for your teenager:
- 18 years and older: Click here to open a Quorum membership online.
- Ages 16-17: Click here to download the membership application for minors.
*Note: If a minor requests to open a checking or savings account and their age is 16 – 17, then a parent or legal guardian MUST be named as a joint account holder, and all associated services are available to the minor (e.g., debit card, online banking, combined statement, etc.).