Managing finances as a college freshman can be an even bigger challenge than navigating an unfamiliar campus or acing a calculus test, but parents can help new students get off to a good start. You may have found it hard to squeeze in time to talk with your college-aged child about money before he or she packed the car and set off to begin a new chapter, but it is essential that families set aside time for a financial conversation over a weekend at home or holiday break. Consider covering the following topics during this important conversation:
1. "You're spending real money." Understanding where tuition and other funds are coming from may inspire your child to spend more carefully. Clarify that loans will have to be repaid with interest, and while scholarships, grants, and gifts may seem like "free money," there are expectations that they will be used responsibly. If you are providing financial support, be clear about which expenses you are – and are not – expecting to cover. If your student requests more spending money than you are willing or able to provide, suggest a job or paid internship. These can provide young adults with valuable work experiences and make their "fun money" a bit more tangible.
2. "Budget for surprise costs." Freshmen encounter many unexpected expenses like club fees, transportation costs, and social dues. Tracking these – as well as any regular bills and necessary purchases – can help your child be more prepared in the future. Budgeting is essential, especially since students do not typically have a significant source of income. Warn your son or daughter to avoid wasteful spending habits such as buying expensive lattes or disregarding ATM fees. These may seem like minor expenses, but they add up over the course of a semester.
3. "Using credit is okay, if you do it right." Though it may worry you to see a credit card in your child's wallet, having knowledge about the importance of good credit and the role it plays in the future purchase of a home or vehicle can help young adults establish financial independence. Explain how credit ratings and interest work, and suggest charging only very small amounts that can be easily paid off on a monthly basis. Advise your son or daughter to view their online statement at least weekly to avoid fraud and overspending.
4. "Don't try to keep up with your roommate." No matter where your child attends college, there will be students who can afford – or who choose – to spend frivolously. Encourage your son or daughter to be conscious of their spending habits regardless of your family's financial situation. If your child decides to splurge on a spring break trip or expensive night downtown, stress the importance of careful saving and budgeting well ahead of time to avoid ensuing debt.
5. "We'll help, but we expect you to be accountable." Having a child leave for college can be emotionally and financially stressful, and the toughest part for many parents is deciding when to intervene. If you fear your son or daughter is making poor decisions – including financial ones – start by addressing the situation. But, do not be afraid to let your child struggle a bit if the financial mistakes and consequences are small enough to correct without long-term damage. Learning the value of money is often easiest when it is not always readily available and when young adults can take responsibility for their own successes and failures.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.
This communication is published in the United States for Texas only; and this advisor is licensed only in the states of CA, CO, FL, KS, MO, NC, NM, OK, TX, and VA.
M. Ahmad Adnan, CFP®, CRPC®, RFC®
Business Financial Advisor
Ameriprise Financial Services, Inc.
3200 Steck Avenue | Suite 250 | Austin, TX 78757
Phone: 512.213.6400 Ext. 102 | Toll Free: 866.238.4230
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