Sending kids off to college is about more than decorating the dorm room.
Parents also need to school their children about budgeting, the risks of using credit cards and other money issues, financial advisers say. Habits they form now can help — or hurt — in the long run.
Often, people in their late 20s and early 30s who are recovering from credit problems can trace them back to their college days, says Ken Chaplin, senior vice president at TransUnion, a credit reporting agency. “The decisions they made they were 18 and 19 impacted them and their ability to obtain credit,” he says.
Students should avoid blunders that could leave scars on their credit reports, he says. That includes paying their bills such as their rent and credit card bills on time. It’s also important to pay their credit card balance in full every month, he adds. Since many of the cards offered to college students come with low credit limits, it can be easy to go over it. Even approaching the limit can hurt your credit score, he says.
Parents talking to their children about money should also research the bank accounts, debit and credit cards being pitched to students to make sure they don’t end up with a bad deal. Some other things to keep in mind when talking about money with your college freshmen:
Budget for food. Rising tuition and living costs can make it hard for students to afford pricey meal plans. Some schools are opening food banks and introducing food vouchers as a way to help students who are skipping meals and working multiple jobs in order to afford groceries.
Find a good bank. At many schools, student IDs are now doubling as prepaid cards that are loaded with financial aid. That convenience can be costly as the cards are often riddled with fees, including a charge on purchases that require a PIN instead of a signature payday advances. What’s more, schools often get millions of dollars in kickbacks for the arrangements. Parents may want to set students up with a separate bank account that may charge fewer fees.
Go over budgeting and fees. Parents should talk to their children to make sure they understand how bank accounts work, personal finance columnist Michelle Singletary says. That means knowing how to balance a checkbook and understanding when overdraft fees may be charged. Other things to go over: budgeting, ways to save money on books and the total cost of college, down to every single fee.
Consider a mobile bank. Tech-savvy freshmen may get help tracking their spending by using mobile-based bank accounts offered by startups such as Moven and Simple that require a smartphone. The startups, which offer basic banking services, such as deposits, bill pay and savings, typically charge fewer fees because they don’t face the same overhead costs as traditional banks. Apps also make it easy for people to set up alerts to know when they’ve exceeded spending limits.
Save on textbooks. The average college student spends $1,200 a year on books and supplies, according to the College Board. Students may save hundreds of dollars a semester by renting textbooks instead of buying them. Chegg, Amazon and Barnes & Noble all rent out college textbooks. At least one startup, Packback, lets people borrow digital copies of textbooks.
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