Personal Finance 101 for College Kids

As millions of parents prepare to send their kids off to college, it is critical that they communicate about safety, hygiene and of course study habits. But it is also important that they discuss money and communicate to their kids that they are responsible for their finances and should act accordingly. Here are the introductory topics to cover: Money Management 101: Each family will create a different system for managing money, but in my experience, the most successful plans start with the creation of a realistic budget. You will then need to discuss what the parental contribution (if any) will be. From that point, parents may choose to provide the student with a lump sum for the semester, though I recommend a monthly allotment, which should help young adults get used to managing finances in the same that they will do so after college.

Credit/Debt 101: The Credit Card Act of 2009 created new rules regarding the extension of credit to those under the age of 21, which has meant that most college kids are prevented from getting a credit card on their own. If parents want their kids to have a card for an emergency, there are a variety of options.

• Debit cards: While they are helpful for budgeting, debit cards do not help build a credit history and can be more of a hassle, in the event of identity theft or a data breach.
• Credit Cards: Parents can add a child as an authorized user to their own credit card accounts or co-sign on a card in junior’s name. Either way, there could be reckless spending and in the case of co-signing, parents and kids marry their credit histories, for better of for worse. A good compromise is a secured credit card, which limits the liability, but establishes a credit history. A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $500 in the account, the card user can charge up to $500. You may be able to add to the deposit to extend credit, or sometimes a bank will reward you for consistent payments and add to the credit line without requesting additional deposits.
• Credit Report: Encourage your child to get into this habit early, by going to AnnualCreditReport.com at the beginning of every academic year and reviewing his credit report. If there is a mistake, notify the credit-reporting agency and stay on top of errors that need to be removed.

Banking 101: Choose a bank that offers free checking and saving accounts in order avoid fees. Shop around to find an institution with convenient ATMs near campus to eliminate out-of-network charges. This is a great opportunity to explain about balancing accounts, which is much easier these days, with the advent of online banking. Both of you should check the account regularly.

Saving 101: If your college student is working to help pay the bills, encourage her to save at least 10 percent of earnings, which can go directly into the bank account. Upon graduation, junior may be pleased to find that there is a pile of money available to help pay down student loans or to rent a new apartment.

Identity Protection 101: The incidence of identity theft for college students is on the rise. Students need to guard their personal information, refrain from using pubic WiFi to pay bills or shop and be wary of over sharing on social media. They should also update their virus protection services and when possible, use two factor authentication, which adds an extra step to logging in to a web site.