In just a few weeks, school begins. Among the plethora of things to worry about as parents prepare to send their kids off to college, student finances definitely tops the list. MyBankTracker spoke with Jonathan Clements, director of financial education at Citi Personal Wealth Management, about the influence that parents should have on their college-bound kids’ finances.
How should parents approach financial lessons for their college-bound kids?
First, you should start the conversation as early as possible. It’s not like you’re going to sit down for one hour and teach your kid about money, hoping that your kid is going to absorb it all. Over time, parents should share how much they earn, how they spend and how they invest their money. A dozen years of you talking about money periodically is going to be much more powerful than a packed hour or two when you try to cram everything about money into their heads.
Second, it’s important to make kids feel like they’re spending their own money. One thing I used to do when my kids were teenagers was put their money in a bank account. If they wanted to spend, they wouldn’t have to ask me, they could go to the ATM themselves.
Third, talk about your own successes and failures when it comes to money. Financial values are passed down through generations in the stories that we tell — things you did, including mistakes, when you were in college and when you first joined the workforce.
Is it realistic for parents and students to establish budgets during college?
Many people follow written budgets and in most cases, it’s not necessary. I can’t imagine college students sitting down and saying, “I’m going to spend X number of dollars per week on hanging out and X number of dollars on beer.” I can’t see it happening.
The more sensible approach, one that student might stick with, is to sit down with parents and figure out how much they have to spend each week and discuss what that weekly budget is meant to cover. It also means figuring what amount is coming from the student and what amount is coming from the parents.
For instance, the parent decides to cover textbooks and groceries but the student is responsible for his or her own entertainment.
One of the dangers is for parents to be too strict about this. You don’t want to put your kid on such a tight financial leash that they feel compelled, during the school year, to spend a lot of time earning money. The number one goal of going to college is to have a great educational experience during which you learn a lot, mature a lot and discover what it’s like to live independently.
If you force your kids to work many hours for money during the school year, they could end up having a poor school experience and fail academically.
If budgets aren’t the way to go, how should parents watch and limit how much their kids spend?
You don’t want to give so much freedom that they can spend whatever they want but you also don’t want students to feel financially stressed during their years in college.
On account and card limits, very much depends on how financially responsible you perceive your college student to be. If you have a kid that’s always careful with money, you may not need limits. On the other hand, if your kid has a pattern of overspending during their high school years, you may want to put tighter boundaries on what they can spend.
You could go for the prepaid card, but you should be aware of the fees involved with those cards. Some banks will offer overdraft protection on ATM and debit card charges. If you’re going to overspend, you probably do want to sign up for overdraft protection.
Another strategy is not to give them their entire semester’s spending money upfront. You might want to dole it out on a monthly basis. One strategy I tell my kids to use is to deduct the card purchase amount from your checking account balance, so that they know they’ll have money to pay when the bill arrives.
Account alerts and email reminders can provide early warning signs of problems.
For parents who may not made the best effort to teach sound financial principles to their children
Parents should keep in mind, if their kids get in trouble financially, they’re almost certain to bail them out. I know very few parents who are going to let their kids sink. They’re almost always going to come to the rescue. You encourage your kids to be responsible but if there is a problem, you find out early so you can fix it before it spirals out of control — though you shouldn’t announce that, “I will always bail you out.”
Encourage your kids to have an open dialogue about money. It might be that they missed a bill or there’s trouble with the landlord. Whatever the problem, catch it early.