Listen up, parents of college-bound children. If your student isn't prepared to handle his or her financial affairs, it's time for a money-management crash course.
Sharon Burns, a clinical associate professor in Purdue University's Department of Consumer Sciences and Retailing, offers this timetable for getting your student financially ready for college:
- Immediately visit a financial institution such as your credit union or bank. Each college-aged child should have a checking account, the most basic money management tool. Make a small deposit to open the account, then begin moving college funds into it. You may want to deposit only enough for the first semester.
- During the next week, each student should develop a semester-long spending plan. Determine how much money is available and where it comes from. Remember to include the student's contribution from work income, your "donation" to the cause and financial aid funds. Total the income, then list expenses. While tuition, room and board and books are huge expenses, don't forget smaller costs, including sporting and other event tickets, school supplies, personal effects, and incidental food purchases.
- During week two, the student should obtain a credit card if that's in the plan. Credit cards offer some flexibility and emergency security. But there are two schools of thought on whether students should have their own credit cards: It's a great way to establish a credit history, which will be needed throughout life. But it's risky because a student may mismanage the credit.
Getting a credit card with a low limit, such as $500, is an option. Or parents may want to obtain another card on their account with the student's name on it. If your child does get a credit card, refuse overdraft protection. That way, if the student attempts to charge more than the limit, the card is declined at the point of sale. Under a new law, students who don't have their own source of income to qualify for credit will need a parent to co-sign.
- Week three's task is teaching students to say no. To themselves when tempted to spend money that's not in the plan and to roommates or friends when they want to borrow money. Have a discussion about these issues. Role-playing is a good technique to teach the student how to say no. Also help your child think about alternatives to costly entertainment or shopping opportunities.
- During week four and periodically throughout the semester, review the spending plan and money behaviors with your child. Were expenses greater or less than planned? Is the student having difficulty keeping track of spending? Was the credit card bill paid in full each month? Eventually, decide if the plan needs to change for the next semester.
One last item: no cheating. The student needs to submit a spending plan for your approval. Don't develop it for him or her. And include your student in all processes, such as opening accounts, completing financial aid forms and applying for credit. After all, college education aside, when it comes to money, experience is the best teacher.