Encouraging your kids to become financially independent in college can free you to focus on your own goals.
STARTING COLLEGE can be a real test: Students suddenly have to learn how to manage their coursework, their social lives, their time—and their money. And financial literacy generally isn’t in the curriculum.
But parents can help, says Harlan Clark, senior vice president of Student and Campus Development at Bank of America. “Covering your children’s college expenses, on top of tuition, could stress the family budget,” he says. With these pointers, you can help them become more financially savvy, so that they don’t become overly reliant on your continued financial support—and you don’t jeopardize your financial security.
“Take some time to have a serious money talk with your kids before they start school. This conversation can be a great starting point for helping young adults understand financial responsibility.”—Harlan Clark,senior vice president, Student and Campus Development, Bank of America
The money talk
“Take some time to have a serious money talk with your kids before they start school,” suggests Clark. Agree on exactly which daily living expenses (Pizza? Ride-sharing services? Housing? Entertainment?) you’ll cover, and which ones your kids may need to pay for by working part time or tapping summer earnings. “This conversation can be a great starting point for helping young adults understand financial responsibility,” Clark says.
Now’s also a good time for you to familiarize yourself with your bank’s mobile app, so that you can transfer funds easily if you plan to send a monthly allowance or your kids need help covering an unexpected living expense.
What to look for in a student-friendly bank
If your student is living away from home, he or she will probably want to find a bank that has conveniently located ATMs—using an unaffiliated ATM may cost them unnecessary fees. But that’s not all to watch for. Many banks offer student checking accounts that tend to offer low or no minimum balance requirements, low-balance alerts and online access to educational materials, among other useful features. In general, Clark suggests, “When selecting a bank, students should aim for low or no monthly maintenance fees, convenient mobile capabilities and alerts to help them keep track of their expenses.”
Some parents may want to monitor their children’s use of money. If that’s the case, look for a bank account that provides your student with a unique ID and access to all services, but lets you view balance information. "That way, they have some independence, but you can also look over their shoulder and offer advice, if it’s needed," says Clark.
“When selecting a bank, students should aim for one that offers low maintenance fees, convenient mobile capabilities and alerts to help them keep track of their expenses.”—Harlan Clark,senior vice president, Student and Campus Development, Bank of America
Why establishing a credit history is important
“When selecting a first credit card, your kids should look for a low interest rate—and explore the various cash-back options available,” Clark suggests. For instance, a travel rewards card might make sense if your student flies long distance to get home for the holidays several times a year. Students may also want to consider starting out with a secured credit card, which uses money placed in a security deposit account as collateral, he says. “Even a secured card can help establish credit history—something that your young adult will need when he or she is ready to buy a car or a home.” If your kids wait until they are 22 to establish credit, they may regret it, says Clark.
Teaching your kids to think long term
“Young people today aren’t looking for a financial safety net,” says Clark. Help them along by teaching them the building blocks of fiscal discipline—sticking to a budget, putting aside a little bit from any pay they earn, and establishing good credit by regularly paying off balances on their credit cards.
You might even introduce them to your financial advisor. Listening to the conversation you have with your advisor about your financial goals could provide useful perspective about their own goals and what they need to do to build a secure financial future. It just may be one of the most important lessons they learn over the next few years.