By Catherine McManus, Associate Director of Marketing Communications, Women & Co.
Before your child heads off to college this fall, it's important to sit down as a family to make sure you're all on the same page about living expenses and spending money while he or she is away. Hidden college costs can add up quickly, and if this is the first time he or she is in charge of a personal budget, you may need to give some guidance on how to spend and save wisely.
"The real cost of college is sometimes hard to determine," according to Katherine Cohen, PhD, CEO and founder of ApplyWise. Activity fees and other costs like transportation, books and participation in social events can add up, so Cohen advises families to plan to set aside about 10 percent of the cost of tuition to cover additional costs throughout the year.
Start the conversation with your child early, and follow this step-by-step guide to help protect kids from overspending their first year:
Step 1: Figure out who's paying for what. Will your child be responsible for a portion of her living expenses, or are you planning on covering everything during the first year? It's a good idea to review all of the expected costs and set some limits early on, so that she doesn't think you have an unlimited reserve of spending money for her to use. For example, you might agree to cover all school-related costs, like books, technology, sports and a meal plan, but ask her to be responsible for personal expenses. As kids get older, you can give them responsibility to take on more.
Step 2: Read the fine print. Take a look at the fine print on various school activities and fees before your child registers. Take the meal plan, for example -- can your child change the plan mid-year if he never eats at the cafeteria so that you're not paying the monthly plan costs on top of his grocery bill? Before spending a ton on appliances or décor for your child's room, be sure to check dorm policy to make sure there aren't any restrictions on the type of small appliances that you can bring. It's also a good idea to make sure your child talks to her roommate to discuss who's bringing what so you don't double up on expensive items like microwaves or mini-fridges.
Step 3: Set up a bank account. If your child doesn't have enough money saved to support herself, you may want to consider setting up a joint bank account that you can use to deposit a weekly or monthly stipend. How she spends the money is up to her, and it's a great tool for teaching the importance of budgeting wisely. Just don't fall into the trap of replenishing the account every time it's overdrawn if your child is spending more than she should. If she can't survive on the amount you've agreed on, it may be time for her to reevaluate her spending habits -- or look for a campus job. But beware of campus ATM fees -- they can easily rack up if your child is hitting the cash machine a few times a week.
Step 4: Weigh your options carefully when considering a credit card. Although a credit card can help students buy what they need, it can also make it easier to overspend and, in the long run, do serious damage to their credit history. "College students may not give it much thought, but a good credit history will be important when they graduate and want to take out a car loan or rent an apartment, and can even influence whether they get a job," says Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management. "That's why students need to keep track of their credit card spending and always endeavor to make their card payments on time."
Most major banks have at least one credit card program aimed at students. Some cards come with rewards programs where students earn cash or other benefits on frequent purchases like food or entertainment. To encourage students to use credit cards responsibly, some card programs, like the Citi Forward® card, reduce the annual percentage rate by one or two percentage points if students stay under their credit limit and pay their bills on time for several months.
Clements adds, "Depending on the bank, a co-signer may be required. If you co-sign for your child, keep in mind that you'll also be on the hook for the student's bills, which could affect your own credit history. If you're concerned that your child might go overboard with the credit card, you can get a card with a low credit limit. That way, if he or she hits that limit, the card should be declined at the point of sale."
Step 5: Use technology to teach. To help kids learn to monitor their spending, show them how to use online or mobile tools to keep track of how they're using their credit card, making payments and withdrawing money from their account. Their phones are already their lifelines, so budgeting will be a lot easier to turn into routine if the tools they need are in the palms of their hands.
If money becomes an issue during their first few months away, take your child's first visit home to have a serious talk about living expenses, what's needed and how he or she is spending money. If your child is consistently tapped out and says he or she needs more money for living expenses, have your child write down what he or she is spending money on, so you can figure out the best way to budget -- together.
About the Author:
Catherine McManus leads public relations efforts for Women & Co.--her goal is to raise awareness for the site by leveraging insights from our content and partnerships to create news, build buzz, and activate social influencers as ambassadors for the Women & Co. brand. Prior to Women & Co., Catherine held various communications roles at The Parenting Group, publisher of Parenting magazine and Parenting.com, where she led the creation and execution of the group's national PR efforts and the development of various multi-media editorial partnerships. She began her career at Southard Communications, a PR firm in New York City specializing in consumer product publicity. Catherine is a native New Yorker, a graduate of Fordham University, and currently lives in Manhattan with her husband and their 2-year-old daughter.