Whether or not you’ve followed SageVest Kids’ age-based guide to financial literacy over the years, your student needs a good understanding of money basics as they head off to college. Many of the financial lessons they must learn apply to their college finances and beyond – the ability to budget, spend wisely, and save for the future are all important financial skills. Here’s what your teen needs to know.
Budgeting Skills for Students
Before your teen heads to college, discuss what expenses you’re prepared to pay versus what your student will need to pay. For example, if they need a car at college, you may be willing to pay for insurance and maintenance, while your teen pays for gas and campus parking.
Needs Versus Wants
Your teen must understand that some expenses are essential or ‘needs’, while others are just ‘wants’ e.g., buying groceries is a need but eating out is a want. Teach your kids to recognize the difference, prioritize the ‘needs’, but also to allow for some ‘wants’ too.
Creating a Budget
College is your teen’s first taste of managing a budget independently. Balancing income and expenditure is the key to long-term financial success, encouraging sensible spending today and prudent saving for tomorrow. User-friendly financial apps like Mint allow your teen to set spending limits by week, month, and even spending category, see where their money’s going in real time, and – if necessary – reduce spending in one area to balance higher spending in another. Other apps like Greenlight link to parents’ bank accounts, allowing easy transfer of funds, co-observation of spending, and target updates toward saving goals.
Wise spending and the art of bargain hunting are useful financial skills to have at college and beyond. Your teen can scout out student discounts at local restaurants, vendors, etc., and source the best value textbooks by avoiding the campus bookstore (often the most expensive), and instead buying second-hand, renting, or using a financial app to comparison shop online.
Income at College
Your student’s college income may come from a variety of sources, including FAFSA and college aid, scholarships, money from home, and part-time and summer employment. While wages and money from home may arrive weekly or monthly, other funds like scholarships and student aid are paid only once per semester or school year. Your teen needs to learn fast how to make that money last!
If you didn’t discuss it while deciding on the right college, make sure your teen has realistic expectations regarding their career choice, potential earnings, and future lifestyle.
Checking Accounts for Students
If they don’t already have one, help your teen establish a checking account with debit card before they head off to college. Choosing a bank that’s on-campus or nearby will provide convenient banking, with lower or zero ATM fees. Ideally, look for a checking account with no minimum balance requirement, unlimited transactions, overdraft protection (in case of errors), and online access, which can make overseeing your teen’s money management easier if it becomes necessary to step in.
Encourage your teen to also establish a savings account, to help plan ahead for longer term or larger financial goals like buying a car or studying overseas.
Don’t forget that your teen will assume full control of any custodial accounts in their name at the age of majority (18 or 21 years of age, by state).
Believe it or not, young people are far more likely to fall for financial scams than their grandparents. To reduce the risks, teach your teen to protect their personal information, review transactions on a regular basis for suspicious activity, and check their credit score regularly.
Everyone over the age of 18 should have basic estate planning documents. A health Power of Attorney with appropriate HIPAA language will allow you to make decisions about your child’s treatment if a medical emergency arises. A financial POA makes it easier to coordinate money needs e.g., if your teen’s studying overseas.
Seek Help When Needed
Teach your teen the dangers of being an ostrich! Whether it’s finances, grades, mental health, or something else, sticking your head in the sand and letting an issue slide invariably makes things worse. Encourage the self-esteem, independence, and resilience necessary for your teen to first tackle challenges themselves, yet with reassurance that it’s OK to seek help in resolving important issues like debt or failing grades, sooner rather than later.
SageVest Kids is brought to you by SageVest Wealth Management, a top fee-only financial advisor in the Washington, DC region. Please contact us to discuss our family-focused independent wealth management services.