FINANCIAL PLANNING
“Instead of buying your children all the things you never had, you should teach them all the things you were never taught. Material wears out, but knowledge stays.”
― Bruce Lee
With autumn approaching, stores fill with school supplies and college freshmen excitedly prepare to embark on their new adventure and new freedoms. In the years leading to this moment, parents focus on all the tasks needed to get their students ready for this life change. But as your college student heads off, some basic financial planning considerations will help smooth the transition to financial independence.
Financial literacy starts early, and the college transition is a great opportunity to teach your students about income and expenses. It’s a mistake to send students the message that you will cover all their needs and wants – no questions asked – even if you made this promise accidentally or with good intentions. Beyond academic education, the college experience provides an education in financial independence and emotional maturity.
Health and Safety
Though young adults can remain on their parent’s health insurance policies to age 26, it’s important to remember an 18-year-old is an adult in the eyes of the law. Parents can no longer ride to their rescue in the event of an emergency and doctors, hospitals, and the university will not share confidential information without the student’s consent. Many universities allow students to grant parents “delegate access” to view their student’s records or perform some transactions on behalf of the student. Meanwhile, it also may be helpful before your student goes off to school to consider securing and discussing these documents:
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Healthcare Proxy/Power of Attorney in the university’s state (not home state) – For medical decisions
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A HIPAA Release – explain what it is and why your student will be asked to sign one at any appointments
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Durable Power of Attorney – For emergency financial decisions (including tuition/financial aid)
Campus Finances
A spending allowance helps students plan for expenses and learn good money management habits. Monthly expenses vary widely (geography of school, your student’s activities, etc., will all impact expenses), but an allowance covers extras like entertainment, dining out, club memberships, and unexpected costs. Begin with an allowance that is below the student’s needs to facilitate conversations about priorities before settling on a final value. Share the cost of your student’s education (tuition, room and board) as well as likely incidentals so your student understands the net cost of his or her university education.
Parents may choose the convenience of arranging automatic transfers between UTMA (or other) accounts and a student’s debit card. Debit card transactions are easily trackable and help students and parents understand spending habits. This also is a good opportunity to explain how credit cards and debit cards work, and to help your student start using one.
Students also may want to make their own money, either with a part-time job during school breaks or when school is in session. Even if students haven’t worked or saved enough before freshman year (and whether or not their family needs the extra income), they may get a job to contribute to tuition, pay for incidentals, or even contribute each year to an IRA. Having “skin in the game” may lead to better academic performance, too.
Students can learn budgeting from phone apps such as Mint, while banking apps allow students to track balances, transfer funds, and pay bills online. Connecting accounts via Zelle, Venmo, or other transfer services make it easy to move cash around.
It’s wise to continuously discuss spending with students to establish which costs parents will cover, and how the funds should be used. The same is true for credit cards. Revisit the spending allowance plan each semester or year, especially after the first year, as adjustments are likely. Also, be aware of potential effects to financial aid from student earnings and parental allowances.
Money Pitfalls for College Students
Help your new college student beware of fraud. Young adults are newly independent and sometimes overconfident in their skills, and are at great risk of fraudsters who have sophisticated ways to ask for their money. Help your new college students beware of traps:
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Protect PII (personal identifiable information): Instruct your students to never share their Social Security numbers, debit or credit card numbers, or any PIN numbers. Also, tell them not to deposit checks for anyone into their account, or send anyone online gift cards or prepaid debit cards.
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Use credit and use it wisely: Have your students use credit cards for online or over-the-phone purchases, because it is easier to resolve fraudulent transactions with a credit card than a debit card. Talk to them before they leave about spending only what they can pay, the hazards of credit card debt and why to pay off any balances each month, and how unwise credit card use can negatively impact credit scores, which can make future purchases (car, house, etc.) more difficult.
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Protect your devices: Tell your students to never respond to someone asking for control of their computer/device. Also, they should not share personal information with anyone who calls/contacts them.
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Beware email requests: Be careful with email and tell your students not to click on links in emails from anyone they do not know.
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Be frugal and empathetic: Teach your student to limit overspending on themselves or picking up the tab just because they have money on hand, because this can lead to high credit card bills and large expenses. Also, teach them to be empathetic of other students’ financial situations and to choose low-cost alternatives to expensive entertainment.
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Good sources: For more information on protecting your college student from fraud, check out these sources: “Student’s Guide to Fraud Scams”, IACLEA or “Back to Campus: 9 Scams for College Students to be Aware of as They Head Back to School”, ID Watchdog by Equifax.