How to Teach College Students to Handle Money
Your College Kids Can Learn to Manage Money
Your child is going 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. 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 don't learn how to handle their finances, they will have problems getting along after they graduate. As an educator and mother who sent two daughters and two step-daughters off to college, here are some suggestions that have been helpful in getting our daughters off to a good start after college.
Money Management is One of the Most Important Skills You Can Teach Your Children
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 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 that you will find helpful. Your goal is to make them as responsible for their everyday college expenses as possible. They need 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 themselves after they graduate.
As they get older, whether they are still in college or they are new graduates, you will want to get them the Suzi Orman book, "The Money Book for the Young, Fabulous and Broke." (Advertised here) It is a book they can read one chapter at a time as they go through life and need to know how to buy their first car, buy their first home, get their first 401K, sign up for profit sharing at their first company, etc. We bought a copy of this book for our youngest daughter and she was so happy with it that she bought copies for her older sisters! You can order the book below, directly from Amazon.
A Helpful Book for New Graduates
They Can 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 that 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 eight years, and has never over-extended herself again.
Student Checking Accounts and Credit Cards
Despite the fact that they will mishandle their money from time to time, it is still important that they have a checking account and a credit card. Learning to balance a checkbook, make purchases with a credit card, and pay their own bills are essential lessons that 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. Be sure there are reasonable limits on the card and that your student understands that they must abide by those limits. You don't want to be on the hook for any excessive purchases!
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. Financial literacy is an ongoing process, and is not something that will be accomplished in a couple of months. However, you have taken reasonable steps to get them started.
In addition, I recommend that you purchase your student a good book on money management about the time they graduate from college. One example is Suze Orman's book, "Young, Fabulous and Broke." One of our daughters received this book at graduation and she appreciated it so much, that she gave copies to her sisters, too. It explains everything that a young adult should know ... from contributing to a company 401K, to the financial information they will need to know before buying a house or car.
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.
Send Them Off to College With This Book
Far too many college kids have no idea how to manage their money. This book will give them a good foundation.