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Top 10 Money Moves for Today's College
Freshman
With average college tuition up 6.3 percent at private
schools and up 6.6 percent at public schools this past school
year, money management is a bigger issue than ever on college
campuses. That's why it's good to send your freshman off to
school with a 10-point plan on how to best manage their money:
1. Take baby steps with credit. It's one thing for a
teenager to use their parents' credit card while they're still
living at home. It's quite another when they get their first
taste of freedom hundreds of miles away. Parents may co-sign the
student's credit card but keep it in the student's name. That
way, parents will know when financial missteps occur, which will
be a strong incentive for the student to keep his credit rating
clean for the next four years. Most important — parents should do
whatever it takes to make sure the child doesn't sign up for any
credit cards on campus.
2. Bank smart. Students need to get some familiarity
with the banking system before they head to college. Kids
generally should set up a checking account on campus, but talk
to them about debit options and how banking fees (particularly
for overdrafts) can eat away at their money. Also ask your child
to ask the bank about direct-deposit options if you're planning
to deposit money for their tuition or agreed-to spending needs.
You want your child to be independent, but if necessary, make it
a joint account and check those balances online.
3. Work with them to set up their first emergency fund.
A young person should get used to the idea of savings and
reserves for unforeseen events such as emergency trips home or
related expenses. Make it clear that late-night pizza and mochas
are not an emergency.
4. Put the student in charge of maintaining her financial
aid. Each year, the FAFSA (Free Application for Federal
Financial Aid) is due in June. State applications are due
earlier. While parents need to run the financial aid process,
students need to be equally aware of how their education is
paid. Everyone should file the form whether or not you think
your child may be eligible, and your child should be searching
for scholarships at all times. It might also make sense to take
your child to your tax preparer to make sure you're taking
advantage of the child's "tax capacity" and other
income tax opportunities. It will be a good learning experience.
5. Make them budget. If they're leaving for college
with a new computer, consider giving them personal finance
software to track their everyday expenses and make sure the
computer has a security password. Work together to determine
necessary realities about everyday expenses, tuition and
financial aid. Then tell your kid that when he or she comes home
at Thanksgiving, you will sit down again to review those figures
and make reasonable adjustments. You obviously need to trust
your kids, but you might want to do this for as long as it takes
them to develop solid and consistent money habits.
6. Schedule a holiday budget and credit check. When
the triumphant freshman returns home for the holidays, schedule
some R&R, home cooking and the first reading ever of their
fall budget figures and their first credit reports. Since credit
reports can be ordered online, parents and student should sit
down with each of the child's three credit reports from Experian,
TransUnion and Equifax and review them for activity and errors.
Since everyone is entitled to one free report from each of the
agencies each year, go
to www.annualcreditreport.com
for theirs.
7. Help them open their first IRA. Get some advice on
this from a trusted financial planner but if your 18-year-old
child is earning wages by working part-time at school, at home
during breaks or for your own company, have them open a Roth IRA
in a growth fund. Make sure they understand this is essential to
their future savings so they don't cash it in.
8. Discuss identity theft. Personal financial data
left on laptop computers, cell phones and other electronic
devices can be readily stolen on campus or in a dorm or roommate
environment. Tell your kid to keep all paper records in a safe
place and introduce passwords to keep all their digital
information safe.
9. Get them networking. Internships and jobs in their
chosen field during summer breaks can give your student a head
start on their career path. Encourage them to research these
opportunities in their freshman year so they'll be in the front of the
line when it's time to apply.
10. Handle mistakes the right way. Most kids will make
money mistakes in college. If they overdraw a checking account
or overdo it with their credit card, make the criticism
constructive but firm and always come up with a corrective plan
you'll work on together.
August 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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