Enroll Your College-Bound Kids in Spending 101
By Janet Hill

So you’re about to send your child off to college, and suddenly you find yourself lying awake at night, agonizing over all the little things that just might go wrong. Sound familiar? If you take the time now to talk to your kids about finances, you’ll have one less thing to worry about come September.

Talk with your kids a month or two before they leave for school. Clarify who will be paying for what (i.e., housing, food, tuition, books, etc.). Will you give your kids an allowance? If so, what is it intended to cover? Are they expected to get a job? To avoid a financial disaster, address these issues before they come up.

Teach them to budget. Have your kids document their expenses and spending for a couple of months. Encourage them to keep receipts and slips, even for the little things. After the first month, talk with them—add up all their sources of income and compare that to the expenses. If the expenses are less than the income, your kids are in good shape. If not, it’s time to start talking about ways to cut spending. Have them classify their expenses and then look carefully at the categories where spending can be adjusted, such as food, cable TV, telephone, etc.

Don’t blame or chastise them; it’s likely that they have underestimated their expenses because they have never been on their own before. Because of this, it is important that they know to put a certain amount of money aside each month in order to cover the cost of unforeseen expenses such as speeding tickets, car repairs, computer problems, and so on. Encourage your kids to come up with a spending limit for each week. If they can’t stick to it one week, they can make up for it by spending less the following week.

Suggest they contact their soon-to-be roommates before school begins to discuss who will be responsible for bringing what. This is a good way to cut a few costs, and, as an added bonus, you can avoid winding up at school with two VCRs and no TV.

If they don’t have them already, open up a checking and savings account for your kids. If your kid is going far, it might be a good idea to open accounts at a bank near campus. Teach your kids how to balance their checkbooks, and encourage them to do so monthly with each statement. If you plan on giving them an allowance, make arrangements for how the money is going to be sent. Will you be setting up an automatic transfer from your account to theirs? Will you be sending them a check each month?

Talk to them about credit cards. It’s exciting, tempting, and expensive when you’re living alone for the first time. Your kids are going to be inundated with credit card offers on campus, so be upfront about the issue before they get into trouble. Consider setting them up with a lower-rate card before they start school to reduce temptation. Be clear if you will be a co-signer or not. Will you be responsible for the entire bill, and, if so, do they have free rein to spend, or is it for emergencies and travel home only?

If your children will be responsible for their own credit card bills, it is crucial that you emphasize the importance of maintaining good credit. Encourage them to pay off their statement in full each month to avoid interest charges. Show them the math by using your own credit card statements, explaining how much interest charges add to a balance and how long it takes to pay the balance off. There are numerous credit card calculators online to assist you.

If your kids start getting into trouble with the card, have a plan for dealing with the situation. Will they be responsible for their own debt? Will you pay it off for them, and, if so, will they have to pay you back? If you give them a debit card to your own account, what is it meant to pay for? What kind of limit will you be placing? How much do you expect your children to be charging on it each month?

Consider credit alternatives. Because a debit or check card takes money directly out of a bank account, there is no danger of getting into high-interest credit card debt. Another option is a stored value card, which is just like a gift card in that it requires you to load a certain amount of money onto the card, allowing you to make purchases up to that amount. Unlike a gift card, however, stored value cards can be used anywhere that the associated credit card is accepted, and you have the option to reload the card when its funds are depleted.

If you have already had conversations with your children about finances in the past, they’re probably going to be fine. Going off to college is a difficult change for both of you. But if you talk to your kids about these issues and help them to clearly outline reasonable and responsible financial behavior, you should have less to worry about. Otherwise, they may be in for a very costly lesson.

Janet Hill is a financial consultant practicing in Salt Lake City, Ut..  She offers Wealth Management and Safe Money Options as a registered representative of Commonwealth Financial Network—a member firm of the NASD/SIPC. She can be reached at 801-269-6749.

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