Preparing Your Child For The Cost of College
With the calendar year coming to an end, some families will be celebrating their child’s first semester of college while others begin to finalize expectations for the next step in their son's or daughter's life. No matter the case, preparing your child properly for the cost of college will set spending expectations and prevent costly surprises.
In my role at MyBankTracker, I am fortunate enough to speak with people on a number of topics. Most recently I have been speaking about the ways to raise a financially independent child. Even with the economy showing signs of improvement, the recession of 2008 through 2010 has made American families realize they need to be smarter with their finances while educating their own children on the importance of money management.
When speaking on the topic, the conversation often jumps to new parents needing direction on when they should introduce their child to money, open a bank account or what steps they should take when providing an allowance. If this is your situation, than I encourage you to read about some general guidelines on allowance. For those whose child is finishing high school or entering college, I want to share a few points I found useful when my parents were preparing me.
Being Transparent About Family Finances When Paying for College
In my opinion, this is easily the most important step outlined in this article. Parents need to be transparent about how much of a strain, if any, education is placing on family finances. By being transparent about what the family can afford, you set in motion what will be expected from you (the parent) and your child (future student). This could include what colleges or universities are a good fit, how much your child will need to save and if student aid is needed.
If financial aid is necessary, make sure to avoid waiting to the last minute. You can always turn the funding down if you later don’t need it. This can be done through the Free Application for Federal Student Aid (FAFSA) program.
Also have your child start applying for every scholarship fund available. This should continue even after they choose a school. If the option is available, push this responsibility on them and make them realize any money collected will help cover their costs.
Introducing a Budget
Once your expectations are set, take the time to create a budget. Continue with a level of transparency by ensuring both parties understand who will be required to cover specific costs. Creating monthly budgets for rent, food and entertainment would help. It also could help you deal with scenarios in which your child blows through his or her budget before the month is over.
Avoid handing over lump sums of cash. Instead, opt for a more controlled approach, such as providing funds in monthly increments. This approach forces your child to become smarter in their spending habits. If a child knows what they need to survive, they could realize a parent’s contribution may not be enough and a part-time job during the school year might be necessary. If a child does not want to work during the school year, they will have the summer to bootstrap and save as much as possible.
Credit Cards: Yes or No?
I am going to start off by giving my stance on this subject — my response always is to avoid putting your credit in someone else’s hands. The CARD Act limited the ability of those under the age of 21 to open a credit card unless their parents co-sign, essentially placing their credit on the line.
While I can see why they government did this — credit card companies were approving those who where to young to understand the consequences of having a line of credit — it's disappointing that it makes it almost impossible for a young adults to build credit. I was fortunate enough to open a credit card when I was 19. My folks burned into my mind that the card was for emergency purposes only and perhaps during the holidays with their supervision. By providing a responsible way for me to use a credit card, my parents ensured my credit was super strong by the time I graduated.
I suggest making your child an authorized user on your card if you want them to become comfortable using a card. This way they will have access to a cash limit for emergency which you can maintain control while monitoring how they use the card. Again, I stress the importance of ensuring you are confident they are ready for this level of money management.
Opening a College Bank Account
If you think credit cards are a step too far for your child, I do recommend setting up a joint checking account. If you want to provide monthly spending money, you will have the ability to make deposits without paying transfer fees. Also, monthly statements will go to both names on the account — a way to track spending habits.
If you are in need of a new a checking account, I recommend checking out some tips on finding the best student checking accounts. To quickly summarize, try keeping the following steps top of mind:
1. Research banks near home and campus.
2. Find a student checking account – no maintenance fees or min requirements.
3. Open a joint account (reasons for this are highlighted above).
Throughout this article I attempted to help set in motion the correct steps to preparing your child and family for the financial burden college can have. As a parent, you will be consistently balancing the roles of cool vs. responsible parent, especially as your child seeks more independence.
To help make this transition easier, always think ahead and prepare. From role-playing scenarios to avoid confusion and surprises to updating a budget plan when tuition increases or the decision to move from residence to off-campus housing comes up. Leading by example will keep surprises to a minimum and make college an all-around better financial experience.
Lastly, for all you new moms and dads out there, take a look at 529 Plans, which could make all the difference.
Have examples or additional steps that worked for you? Make sure to comment below.