How to Teach College Students to Handle Money
College Kids Can Learn to Manage Money
Your child is headed off to college soon, the acceptance letter has come, the living arrangements have been made, and now you need to decide how to help your student manage money. There are many issues to consider. Should you pay for everything? Should they have a credit card? Should you give them an allowance? Should they be responsible for handling any of their own bills?
Learning how to handle money is one of the most important things an 18-24 year-old can learn. In fact, no matter what else they learn while they are in college, if they do not learn how to handle their finances, they will have problems surviving well after they graduate.
As an educator and mother who sent two daughters and two step-daughters off to college, this article contains a number of suggestions which were helpful in getting our daughters off to a good start after college. Some of them we learned by trial and error, a method I hope you are able to avoid.
Money Management is One of the Most Important Skills You Can Teach Your Children
Trust Them To Handle Their Monthly Expenses
Rather than paying every bill for them, it is much better to give them the money for their monthly expenses and let them pay for their own rent, bills, and school supplies. Be sure they have a reasonable amount of money each month to cover their expenses. After that, they need to set up a budget to make certain that they have enough money left over for entertainment, restaurants, sporting events and other things they want to do.
It is important to realize THEY WILL MAKE MISTAKES. That is why it is so essential that students have this time to practice handling money while they are still in college. Try to bail them out as seldom as possible, and let there be consequences when you do.
For example, when one of our daughters over-extended herself buying clothing on her credit card, we paid the card off for her so interest would not continue to accumulate. However, in return she had to turn over to us nearly all her paychecks from her next summer job. We did not simply "forgive" her loan. We understood that young people are going to make mistakes and so we helped her out, but she did have to suffer the consequences of that help. She has now been out of college for more than a decade, and has never over-extended herself again. She hated working that summer and turning nearly all her money over to us, but she learned an important lesson in the process. We made sure that we allowed her enough money from her earnings to cover gas for her car and incidental expenses, so she still was able to benefit from working.
Send Them Off to College With This Book
Far too many college kids have no idea how to manage their money. We found that this book helped our own daughters get a good foundation. It taught our daughters how to set up a basic budget, handle their credit cards, and understand the consequences of making bad financial decisions. They were all able to handle most of their bills during college, with only a few poor decisions.
Student Checking Accounts and Credit Cards
Despite the fact that they will mishandle their money from time to time, it is still important for college students to have a checking account and a credit card. Learning to balance a checkbook, keep track of debit card purchases, make purchases with a credit card, and pay their own bills are essential lessons which are as important for their future as anything else they will learn while they are in college.
Be cautious, though. Under today's new, stricter guidelines for credit cards, most students will need to have their parents co-sign. Make sure there are reasonable limits on the card and that your student understands they must abide by those limits. You don't want to be on the hook for any excessive purchases made by your student!
In addition, watch out for any automatic increases in their spending limits. While these increases can improve their credit rating, they can also make you liable for even larger amounts of debt. Do not allow the spending limits to be increased until you are convinced your student is responsible enough to pay off balances every month and control their spending.
You will also want to explain to your student the risks involved in over-extending their checking account by writing bad checks. They need to learn to keep track of their finances.
Become Less Involved in Their Finances
During the next few years, you are going to teach your student to stop expecting you to pay for everything, and help them learn that they need to become responsible adults who can handle their finances alone. No college graduate can be successful if he hasn't learned this lesson. While each situation will be different, depending on whether your child is working part-time, and whether they live in a dorm or apartment, there are certain guidelines which you will find helpful.
Your ultimate goal is to make them as responsible for their everyday college expenses as possible. You need to keep this thought in the forefront of your mind with every financial decision you make on their behalf. The student needs to be involved when you sign student loan papers. They need to be fully aware of how much everything costs, and what loans they will be expected to pay back by themselves after they graduate.
As they get older, either during their later years of college or when they are new graduates, they will find it useful to have the Suzi Orman book, "The Money Book for the Young, Fabulous and Broke." It is a book they can read one chapter at a time as they go through life. The information in the book will help them make wise decisions when it comes time to buy their first car, buy their first home, get their first 401K, sign up for profit sharing at their first company, or make other financial choices.
We bought a copy of this book for our youngest daughter when she graduated from college and and she was so happy with it that she bought copies for her older sisters! That daughter is now in her mid-thirties and is married with two children, but she and her husband continue to use her copy of the book as a reference tool.
A Helpful Book for New Graduates
We purchased this book for our youngest daughter and she was so pleased by it that she purchased copies for her older sisters and recommended it to friends. More than a decade after graduating from college, she and her husband still use the book as a tool before they make any major financial decisions. It covers topics such as buying your first car and home, signing up for an IRA or 401(k), and using credit wisely.
Overall Financial Advice for Students and Parents
Once you have included your young adult in the student loan process, helped them work out a livable budget, turned over their monthly bills to them, and helped them set up a checking account and a credit card, your student will be prepared to handle their own finances, not just in college but for years after they graduate. Financial literacy is an ongoing process, and is not something which will be accomplished in a couple of months. However, you have taken reasonable steps to give your students a good start in life..
I have always been told that “The purpose of a parent is to raise children who do not need them anymore.” If you follow these steps with your college age children, you will be well on your way to accomplishing that goal.