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Top 10 Money Decisions for Today's Incoming
College Freshman
The National Center for Public Policy and Higher Education
reported last December that college tuition and fees increased
439 percent from 1982 to 2007 while median family income rose
147 percent. The report also noted that student borrowing has
almost doubled since 1998.
The most worrisome statement to come from the report? That if
current trends continue, our country might be without an
affordable higher education system in 25 years.
This is why it's crucial to train incoming college freshmen
in critical personal finance skills. Before you send your child
off to school, make sure you cover the following lessons:
It's never too early to plan: If you think your words
won't hold enough weight — or you need some guidance yourself —
consider bringing in an expert such as a Certified Financial
Planner™ professional. It's never too early to deliver the
message that how a child manages his money in college will set
the stage for how well she manages it in adulthood. A planner
can help a child focus on spending and debt issues in college,
but it also makes sense to discuss how your student will save
for a home and a car. That might force some smart spending,
saving and investing decisions while she's still in school. Once
your child gets the message, consider a meeting for yourself.
Focus on 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, often without the parents' knowledge.
Parents should opt to 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 where they'll be bombarded with offers.
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 fees, particularly for overdrafts, which
are sky-high at many banks now. 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.
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 is not an
emergency.
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. By the way, legitimate
scholarships never charge fees and are typically open to all
applicants for consideration. It might also make sense to take
your child to your tax preparer to make sure you're taking
advantage of any income tax opportunities.
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. (Keeping track of spending by calculator is
fine, too.) 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.
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.
Help them open their first IRA: 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. Ask your planner
about this.
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.
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 freshman year so they'll be in the front of the
line when it's time to apply.
Handle mistakes carefully: 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.
June 2009 — 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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