Financial independence training is a short-term pain, for a long term gain. Because “untrained” college students are sitting ducks for unscrupulous financial service companies and their own lack of financial sense.
So, with that in mind, here are some off-the-cuff guardrails to consider for your son or daughter entering, or continuing on through college…
1. Make a definite plan to leave college with no consumer debt. And I’m talking a real PLAN. Credit cards, car loans — college kids are ripe for the plucking. Consumer debt is a real killer, simply because it depreciates so much. In a short matter of time, these items lose their value, but the payments and interest continue to inexorably pile up. So set up a clear budget for travel, late-night snacks, and other miscellaneous lifestyle expenses (heck, going through the process might even prompt some lifestyle evaluation!). Tell your child: “You should have an exact answer if I ask about your weekly spending limit.” And have them try to earn enough over the summer that they can afford to skip the part-time job during the spring and fall semester.
2. ATM bank fees are killer. Moving to a new city often means the local debit card will likely be charged from $1.50 to $3.00 for every withdrawal from a foreign ATM. Consider an online bank account like Charles Schwab Bank that reimburses all ATM fees or a local bank with easy ATM access (locally, here in Newport Beach, First Bank offers this also).
3. Overdraft fees are as common as hangovers for the college kid — avoid both. A recent Pew Foundation study found that the median overdraft penalty fee is $35; an additional $25 accrues if this overdraft is not repaid in seven business days. The average bank allows up to four of these overdrafts to occur in one day for a total fee of $140 or more per day. However, if you open a savings account in addition to your checking account, you can apply for overdraft transfer protection. You might even set up a situation where the college student controls the checking account — but you control the savings.
4. One cell phone bill gone awry can swamp you. New routines in college will likely mean that calling and texting habits will change. Or just one call to that high school sweetie who is spending the semester abroad might necessitate a different plan. If your child doesn’t have an unlimited plan, have them make it a habit to review the account online in the middle of each billing cycle. By the way, this is a very good expense to NOT pay for as a parent.
5. Avoid gimmicky credit card offers. Often the first credit card is awarded at a football game where so-called “free” T-shirts are being handed out. Again, college kids are ripe targets. Shop online for the best rates and terms and purchase a dozen dress shirts with the money saved by finding a card with less onerous terms for interest rates and late fees. Focusing on the so-called “rewards” which credit card companies give you is a distraction in your financial life. Like a casino, credit card companies win most of the time — which is why they stay in business.
And, of course, having children enter into adulthood changes your estate considerations. Let us know if this applies to you — we’re here to help!