Budgeting for college students: 6 tips for parents and students
- College-bound children need advice and guidance to learn how best to manage their money.
- This transition gives parents “teachable moments” to help their kids become financially responsible adults.
- Now’s the time to instill positive habits around budgeting, spending and responsible use of credit.
As your child prepares to leave for college, you are probably packing pillows and laptops, perhaps arguing about whether they need to bring their own microwave. While money matters may be the last thing on your mind, teaching your teen to be financially responsible is an important part of the process, and one you shouldn’t skip for their own financial well-being.
Consider these six financial tips to for college students to help your teen or young adult become a financially well-rounded college grad and fiscally responsible adult.
1. Create a budget together
College may be the first time your child will be responsible for managing their own expenses—or at least the first time on a larger scale. Sit down with them and create a budget on paper that estimates potential expenses for the year.
Make it as concrete as possible
- Create categories
- Break it down by month to track expenses
- Compare and contrast as the school year progresses
2. Verbalize money boundaries
Make sure to write down what you’ll pay for and what your child will pay for when they're at college. “Otherwise, it can become an emotional conversation about what you said you’d do,” says Susan Beacham, founder of Money Savvy Generation, a company that develops financial education products. Some parents pay for tuition, room and board but not for, say, books or sorority expenses. Some pay for everything. “I don’t recommend parents do that,” Beacham says. “Every child is supposed to be standing on their own two feet, not only as a college student but independently as a person who is managing expenses in this new, independent life.”
3. Have them track their spending
Creating a budget is very different from sticking to one, and kids don’t always realize how much the little purchases add up. Have them track every single purchase, either on paper or using an app, for the first month of school so they can get a feel for the outflow of money. “That means the Starbucks, that means the juices, that means the four Frappuccinos in a day,” says Neale Godfrey, founder of the Children’s Financial Network, a company dedicated to the worldwide financial literacy of youth and their parents. “I worked with a kid who graduated with $19,000 of credit card debt from pizza and smoothies.”
4. Talk about a job
Is your child going to work while they are at school? During school breaks? Over the summer? What do you expect, and what are they expected to cover with that money? If possible, it might be easiest to spend the first semester concentrating solely on school and then determine whether your child can handle a part-time job along with their course load. If you decide to add a job to the mix, be sure to look for something manageable — working too many hours can cause school performance to suffer.
5. Give them credit training
Help your child ease into the credit card world by giving them a debit card and teaching them how to use it. Have them opt out of overdraft protection so they can’t use the card if there’s no money in the account. The debit card should be used in accordance with the budget you’ve created and the categories you’ve discussed — what you will cover and what they will cover.
After a year or two of this, “you’re ready to graduate to a credit card,” Godfrey says. Many experts agree that co-signing for a card is a bad idea, which you’ll have to do if your child is under 21. You can either wait until they hit that age or they can get a card on their own if they can show some income from the jobs they've been working. Having their own card is a good step when it comes to being responsible for debt and establishing a credit history. Also, it's important they know that carrying a balance is often a bad idea. “You wouldn’t throw the keys to the car to a 16-year-old without putting them in driver’s ed,” Beacham says. “Don’t give your child a credit card without very specific guidelines.”
6. Sign them up for a class
Does the college offer a personal finance course? What about the local community? Understanding the basics of finance — such as interest rates on loans and what’s a reasonable amount of debt — will go a long way toward helping your child function as an adult. Prepare your child now for money independence later, and everyone wins.