If parents were to ask their college-aged children about interest rates, 401(k)s or budgeting, chances are they would be stunned at their children’s limited knowledge of personal finance. The onus is on the young adult to grasp financial know-how throughout their college years, before they enter the real world. To help set up your child for financial success, parents should help cover fundamentals. College freshmen, who are getting accustomed to a new world of independence, have a few money lessons they must master.
Lesson 1: Safely build credit
Once enrolled in college, students will likely be approached by a bank to apply for a credit card. Using a credit card from a young age is a great way to build credit, but it can be easy for a college freshman to go overboard and get themselves into trouble by swiping too often.
One tactic that can help college students build credit, while avoiding any disasters, is to apply for a credit card and use it for a small recurring charge on it, such as a Netflix account. The card should then be left at home and out of reach. This low-risk scenario allows young adults to build credit without the temptation to overspend. It also offers parents the opportunity to explain how credit card debt can be accrued, and how to avoid it.
Lesson 2: Shift responsibility
Throughout the school year, parents shouldn’t blindly hand over cash and wish their children good luck. Empower your kids with the knowledge to make the best financial decisions. Have transparent conversations and set “agreements” as to how much financial help a parent will provide. Will the student plan to get a part-time job in the spring semester of college to help with their own discretionary spending? Will it be on them to save money to purchase their own textbooks at the start of each semester? These conversations and plans are necessary so that parents and children are on the same page about what each party will cover. Sharing the expenses will instill a sense of responsibility onto the student to plan time into their schedule for work so that they can financially support themselves.
Lesson 3: Check-in on finances
Use winter break as a time to discuss the financial plan. Parents and students should have conversations about how the student’s budget held up over the first few months in college, and what changes should be made going into the second semester. This check-in will help the student to not only form short-term plans for the upcoming spring semester, but will also get them in the rhythm of checking in on finances and making adjustments where necessary. This will help build skills that are important throughout one’s life to address financial issues and/or maintain monetary success.
By addressing a college freshmen’s money plans and overall philosophies now, they can begin to implement important life-long tactics that will put them on the road to financial know-how.
If parents would like assistance managing these discussions with college-age kids, involving a trusted advisor can help get the message across. Please feel free to contact us at 215-721-2112 to discuss how our team can work towards creating a plan.
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