Can You Trust Your College Student With Managing Their Money?
One thing we've heard time and time again:
"How involved should I be in my child's finances once he/she goes off to college?"
Great question and there are many answers to this as there really isn’t a one size fits all when it comes to what parents should do for their children. But, what we can say is that as they grow and continue into adulthood, it’s important that we arm them with all the information they need to be successful and independent.
One thing we are truly passionate about is making sure kids are taught about personal finance at a young age. But if your kid did not have the chance to learn about all the different aspects around money and maybe missed some opportunities like owning a debit card, no worries. There is still an opportunity to teach those lessons. We do, however, suggest that you become more involved in their finances initially, especially as they go off to college and get their feet wet.
Whether they were taught the value of money at a young age or not, this is still an opportunity for them to learn about money. For example, when they’re away at school, where should they spend? Where is their opportunity to save? What are some of the new big expenses they will now incur? These are all important and make for perfect teachable moments.
But to make sure your kid can be trusted to manage their own money, here are a couple of things to keep in mind:
Your ability to practice a bit of tough love.
The first thing they really need to learn is how to budget. In college, you won’t be there to tell them no. You better believe that when they first realize they can have ice cream for breakfast, they will be eating ice cream for breakfast.
Same goes with their spending. Be tough on them about their budget. If they spend all the money in their bank account online shopping, it’s crucial that they learn that mom and dad won’t just automatically refill it.
So many times parents end up providing their bank account or own credit card as back up, so your kids won't incur lots of fees if they overdraft. But, what if they go on a spending spree? Then your left holding the bill. Consider using a credit card or bank account with a limit to help guard against this.
Your child’s already existing views on money.
You should think about your child's current attitudes and decision making when it comes to money. How have they spent money in the past? Are they a saver or a spender? That will also help guide decide what guard rails you will need to put in place to safeguard both your credit and theirs.
Arm your kids with as much information as you can for them to be successful and guide them along the way. But, remember, sometimes the best way to learn things is the hard way, so it’s important not to bail them out on their own bad decisions. Another big question around this was:
“At what age should my child have a credit card and begin building credit?”
College is a great time for kids to start down their credit journey. They’re old enough to open a credit card but young enough for you to still be a consigner.
Building credit is extremely important because once they leave college and start working, they’ll need a credit history to do things like:
- rent an apartment,
- buy a car,
- or even just to open a new credit card for travel expenses.
That said, here are two great options to get your kid’s credit journey on a roll:
Low limited credit cards
There are some great options out there for college students but opting for a card with a low limit might be the way to get your kid acclimated to the responsibility of a credit card. With a low limit credit card, your kid can apply 1-2 expenses that they know they can pay off.
It’s essential that they learn not to use their credit card just for any purchase. If they have a student Spotify account that costs them $5 a month or they know that buying groceries will cost them $40, these are the perfect things to put on a credit card. Having them choose manageable expenses that they know they can pay it off is a good first step at having them get used to the responsibility of having a credit card and paying the bill on time.
Pre-paid credit card
Another good option could be a pre-paid credit card. By prepaying the amount, it is available for emergencies but has a limit. Work with your child on using the credit card but not maxing it out. Strive for keeping a balance of no more than 1/3 of the credit limit. This will help them with their credit score.
Also, have them run a credit report at least once a year and set alarms in their calendars to pay all bills on time. That can be the quickest way to ding your credit score, so they get used to managing the responsibility on their own.
It’s so important for us to arm our kids early on when it comes to personal finance. Not only will this set them up for success down the road but it will also allow them to make some mistakes early on when the risk is a bit lower.
Written By: Meredith Morris
Meredith is a Philadelphia native with a bachelor’s degree in Integrated Marketing Communications from Duquesne University and has worked in digital marketing for over seven years.
Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Vantis Life encourages individuals to seek advice from their own investment or tax advisor or legal counsel.