With high school graduation ceremonies in full swing, it is easy to overlook some important money lessons for college-bound students. Parents may be experiencing a little trepidation and separation anxiety over their child leaving home, but having the "money talk" is a great way to stay connected and still make a positive difference in their lives. The majority of new college students have had little experience managing money on their own, and parents should not assume they have learned this elsewhere as only 17 states require high school students to take a personal finance course.
How the subject is broached does take a little forethought, as the last thing you want to do is make it sound like yet another lecture. Setting a tone of trust and openness is a sign of your recognition of their growth and independence -- and you might be surprised at how eager they are to learn. Here are some suggestions for getting started:
Start with the basics
Assess how much your child may or may not already know. If you have been managing their finances for them up until now, you'll have to start at the beginning including how to open and manage a bank account, how to write a check and how to get money out of an ATM. Talk about the importance of paying bills on time, keeping track of transactions and spending, and making sure they keep enough in their account so that don't overdraft. Consider having them sit with you while you pay some of your own bills so they can get a better sense of how much things cost and the monthly budget cycle.
It's also importance to explain the different ways of paying for things such as using cash, checks, debit cards, credit cards or loans. They'll want to be careful not to carry around a lot of cash or keep it in their dorm room, as it can be easily lost or stolen.
If you are planning to get your child a credit card by making them an authorized user on one of your existing cards, set some clear boundaries on how and when it should be used -- such as only for emergencies, or only after they have called to get your permission. Most students are usually very responsible if they know the ground rules upfront. Even if they already have a credit card, reiterate that using a credit card is borrowing money from someone else, and it has to paid on time and in full each month to avoid late fees and interest payments.
Set clear payment expectations
Another topic to cover is the cost of attending college and who is expected to pay for what. For example, if you are providing support for tuition, fees and room and board, who will pay for books, school supplies and other costs such as travel and the cell phone bill? Review any financial aid that has been awarded so they understand the difference between a grant, which does not have to be paid back, and a loan which they will have to pay back even if they don't complete their degree. If you are taking out a parent loan, be clear about your expectations of who will pay those back. Remember, you are ultimately responsible for these payments, so borrow cautiously.
Save those summer earnings
Once students understand what costs and incidentals they will be responsible for paying, make sure they are setting aside their summer earnings. Help them set up a simple budget for how much they can reasonably spend each week to make sure that money will last for the semester or school year. If they will be receiving a refund from their financial aid after tuition and fees have been paid, they should include those funds in their budget as well. Keep in mind that these funds are most likely from student loans they took out, so they should be used for books and other educational expenses, not ordering take-out.
Let them figure it out
Sometimes our first reaction as parents is to solve the problem. But with money management, some of the best lessons learned are from making little mistakes. If they run out of money and it's not an emergency situation, allow them some time to figure it out on their own. They may have to forgo those late night pizza deliveries for a while, but they will get a better grasp of how quickly money can disappear if you're not careful.
Give them peace of mind
Lastly, you'll want to make sure they understand that they can always turn to you for financial information or advice. Explain that you may not have all the answers (and may have not made all the right choices yourself), but together you will figure it out.
Keep in mind that the time you take now will help them build their own financial capability that will last a lifetime. It's a gift that is just as important to their future as the education they will be receiving at college.