As Melanie Marshall (a hypothetical case) prepares to head off to college, she’s looking forward to her newfound independence. Although Melanie will be on her own for the first time, her parents, Joan and Al, can at least rest assured they’ve schooled her well in handling her personal finances.
A typical student spends well over $4,000 during the school year on books, supplies, transportation, and personal expenses (Trends in College Pricing—2014, The College Board). Unlike Joan and Al, parents who allow their students to “spend as they go” may soon find themselves needing to refill a seemingly bottomless well.
Laying the groundwork
To help prevent overspending, Joan and Al have been helping Melanie develop basic money management skills. To get her off to a good start at college by laying a good foundation they:
Held a meeting to discuss everyone’s expectations.
Allotted a lump sum for each semester, making it clear what the funds must cover, how long they must last, and any rules for their use.
Explained how and when the funds will arrive, and how much to expect.
Joan and Al have several options for getting the funds to their daughter. They can send her checks or they can transfer funds directly into her account through online banking. Online banking has become a financial lifesaver for many parents with children away from home in strange cities or towns.
Credit cards often provide a good back-up resource. To prevent credit card misuse, many parents limit their use for emergencies only. Credit cards also come in handy for booking plane and train reservations when your child is traveling to or returning from school.
Cultivating money smarts
To encourage Melanie to take responsibility for her finances, Joan and Al taught her to manage her own savings and checking accounts. She met with a bank representative to open the accounts, and has been practicing balancing her monthly statements. This accountability will help set the foundation for her future financial independence.
Joan and Al continually emphasize the importance of disciplined spending. They recommended that Melanie allocate a set amount per week for discretionary spending, so she’s not tempted to withdraw funds too quickly or carelessly. By discussing what this amount must cover, Melanie has come to realize that too many late night pizzas could easily exhaust her funds.
Although Melanie initially plans to live in a dorm, her parents used the decision about whether to live on- or off-campus as an exercise in evaluating financial tradeoffs. At first, Melanie thought it would be cheaper to live off-campus. However, she soon found out that in many college towns housing located within walking distance of campus can be expensive. Also, landlords frequently require a one-year lease—a period longer than the school year. On the other hand, living off-campus allows students to save money by sharing housing and preparing their own meals. Melanie may revisit this decision as she progresses to her sophomore or junior year, as she makes friends and becomes acclimated to the area.
Like the Marshalls, both you and your college-age child stand to benefit if he or she “makes the grade” in personal money management. Life will become much easier for you if you can count on your child to manage his or her out-of-pocket expenses while away at school. And your child will thank you as his or her mastery of this valuable life skill leads to financial independence down the road.
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