Preparing Teens to Manage Finances During College
College is a time when most kids have one foot out the door toward independence. Once they graduate college, and obtain their first job, the hope is they will move out and become financially independent. One way to help them toward that goal is to begin preparing them before they enter their college years. The following list will get you started to that end; although, the list is not exhaustive. You may discover other financial areas where they need guidance and training.
Opening a checking account is the first step. If your teen does not have a checking account, now is the time. Having your teen open a checking account now will allow them time to practice managing it before going off to college. Here are a few tips to keep in mind:
• Locate a financial institution that is located in your area and the located in the area of the college. For example, large banks such as Wells Fargo or a credit union with shared branching.
• Get teens set up with an online app to access up to the minute balances, make transfers from checking to savings, and obtain account statements. An app can be downloaded on a computer, tablet, or smart phone. Online statements typically need to be requested but note that if you request online statements, you probably may not receive them in the mail at some financial institutions. You can make a request to receive them in both formats.
• Make sure they take a voided check to set up direct deposit at their new job. A set of counter checks can be obtained, usually for a small fee, from a teller at financial institutions. Credit unions print the name and address of the account holder on the counter checks; whereas, many banks do not and leave name and address area empty. If you obtain counter checks that do not have a name and address, make sure to immediately print that information on the check.
• Because there may be times when your teen may receive a check, such as their first pay check, a check from the school or a friend, teach them how to use mobile deposit capture if they are using a smart phone, iPad, or tablet. Mobile deposit capture usually has to be turned on by the financial institution.
• Shop financial institutions to discover who offers the least amount of fees for the most products.
Managing Checking Accounts
Most teens do not understand the importance of managing their checking account. Instilling the value of reconciliation and other tasks while they are at home will encourage them to do those tasks once they are at college. Here are a few things to keep in mind:
• Teach your teen how to track their expenses and income using a paper account register, a spreadsheet program, a money management program, or an online app. Use a method that works with their learning style and preferences as they will be more likely to stick with it.
• Go over how to reconcile an account and have them perform the task each month before they go off to college.
• For safety purposes, it is better to keep the home address as the account address. This means, the bank statement will be delivered to the home addressed if it is set up to be mailed.
• Changing to online statements allows your teen to access their statements online and they can reconcile their account without having their statement laying around in their dorm room.
Spending & Savings
• The meal plan and flex dollars at college may be enough food for some students and not for others. Also, some college dining services do not offer food for certain meals over the weekend. Other meal plans allow for a set number of meals per semester which does not add up to three meals a day, seven days a week. If you think your teen may require more food than what is offered using a meal plan, teach them how to cook to save money. Also, have them stock up on snacks and beverages at the grocery store as it is less expensive than the convenience stores on campus.
• Renting books can have a significant impact on the reducing the costs of materials but they must be returned by the stated due date; otherwise, your teen will incur the full fee of the book. Renting books is not a good idea for subjects that apply to your teens major as they will not be able to keep them for future reference. Another way to save on books is to purchase them used through Amazon or other sites that sell used college textbooks. Keep in mind that digital books are difficult to maneuver and use for studying. Some students like using them, but many don’t.
• Instill in your teen Avoid the Bait, Wait 48© motto. Teach them not to be baited into impulse buying. If there is something they want that is not in their budget, teach them to wait 48 hours before purchasing.
Many college students, along with their parents, are not thinking about building credit while attending college. One day, however, your college student will want to move out, either to live with college friends during their junior or senior year or once they graduate. Moving off campus will require a lease for a rental unit. A lease will require a guarantor. If you, the parent, do not want to sign as a guarantor on your college student’s lease, then you need to help them build their credit. Here are a few tips to help them:
• Credit reports and savings answer the five C’s of Credit for a creditor and employer.
• Capital – Does your college student have the money to invest such as a security deposit? They should start saving money now.
• Capacity – How will they repay the debt? They will need a job. Most approvals require monthly gross income to be three times the monthly rent payment.
• Collateral – What will they give to secure the debt such as a security deposit and first month’s rent payment? Again, they need to begin saving now for this future expense.
• Conditions – Why do they want to rent the apartment they picked out? Is it close to their college, their work, etc.?
• Character – What does their credit report say about their character? Creditors look at repayment history, job longevity, etc. If your teen obtains student loans, those loans will be considered secured credit on their credit report. Your teen will also begin to receive credit card offerings because of the student loan. Teach them to shred those offers that come in the mail.
• An individual can build credit without incurring debt with a pledged or secured credit card. This type of credit card uses collateral in the form of a deposit equaling the credit limit on a credit card. A college student can use the card for gasoline. They should pay the card off every two weeks or when they get paid. Additionally, they should not ever charge more than 30% of their credit limit. For example, if they have a secured credit card with a $500 limit, their outstanding balance should not be more than $150 at any given time.
Many teens and college students are trusting of their peers but they should be careful. One never knows who is paying attention because they plan to steal information. The following are suggestions to help with identity theft but it is not a full list of things to do.
• In 2015, 490,000 identity theft complaints were filed with the Federal Trade Commission. Children and senior citizens are the primary targets. Have your teen run their credit report once they turn 18 years old. Many teens run their credit report at 18 only to find out their identity has been stolen and someone has racked up a lot of debt based on their social security number. It takes months to fix this situation, so teach them to keep an eye on their credit report.
• Teach your teen, “Do not Flash Your Cash!” Flashing your cash can open the door to giving others access to personal information easily used in identity theft. How? When a person sees someone flashing their cash, they may steal their wallet. Most wallets contain a person’s driver’s license, social security card, debit card, medical insurance cards, and more.
• Keep the home address on as many accounts as possible such as the checking/savings account. The less a person has access to someone personal information, the less likely they will become a target.
Some colleges offer doctor and dental services on campus and others do not. Sometimes a college student is sick enough that a campus doctor will refer them to a physician off campus. Preparing students for medical issues will lessen stress during times of illness or injury. Here are a few things to consider:
• Check with the college by calling or looking at their website about any sports physicals, vaccinations, etc., that are required before the first of classes.
• Teach your teen how to fill out a medical history, sharing with them the medical of their family and themselves. Blank medical history forms are easily located on the internet to use for practice. You can have them fill one out and take a picture of it to store on their phones or computer, too.
• Locate doctors, dentists, urgent care facilities, and hospitals in your network and send that information with your teen.
• Send medical cards with your teen. Additional medical cards can be easily obtained by college the health insurance company and requesting them.
This list will get you started in helping prepare your teen to manage their finances effectively during college; however, it is not exhaustive. You will probably think of other things such as teaching auto maintenance and finding a reliable auto repair shop in the city of the college. Let us know in the comments what things would you add to the list?