Ask TWR: How do I talk to my soon to be college student about money?

Welcome to Ask TWR, where we answer your pressing questions about money, finances and how to handle them. Have a burning questions about money? Send it over to us here

Dear TWR: my daughter is going off to college for the first time at the end of this month, and I know I need to talk to her about money, but I just can’t seem to broach the subject. Do you have any advice on how to get the conversation started and any tips on what she needs to know? -Concerned Mom

Dear Concerned: Great question! Talking about finances is always tough and handling your finances can be even tougher, especially for kids going off to college! You want to teach them financial independence, and how to make smart decisions, but it can be difficult to have that initial conversation. No need to despair, however, we have a few tips for you on how to start that conversation, and some topics you should consider covering. 

First of all, you can begin by just opening the lines of communication in a frank and honest way. We generally follow the bandaid approach for tough topics–just rip it off all at once and dive right in. 

Start with the basics. Will she be supporting herself? Will you be contributing? Will she take out a loan? Sit down with her, and ask her what her thoughts are on finances in college. Chances are, she’s thought about it as much as you have, and may offer perspective on what will work best for the two of you. The most important first step in making sound financial decisions, is facing the reality of your financial situation, and making choices around that reality.  

Once you’ve got the conversation started, the big question is what should you talk about. Financial management for a beginner can be overwhelming and not everything should to be covered in one sitting, but there are some key topics you should address right out of the gate. 

It’s all about the Apps! 

Good habits are sometimes hard to maintain. For your college aged kids though, there are some apps out there that can make budgeting easy! (Here at TWR we really like mint.com, for example). You can connect a college debit account to the app, and it tracks all income and outgoing expenses. You can set a budget on the app for any recurring expenses like rent, groceries, and insurance and set an amount for discretionary spending. The app will let your kid know when they start to go over budget, and let them track their monthly average spending habits. This will help them have a better idea of where their money is going!  

To Save, or not to Save?! 

If you want to go beyond budgeting, and discuss saving, there are lots of ways to go about it-the easiest way for your college student could, again, be an app! For example, the App “Chime” is an online banking account that offers a savings, and checking account, and a debit card! Every time you buy something with the debit card, the amount is rounded up and the spare change is placed into the savings account. It also automatically deducts ten percent of income every month, placed into the savings account. This is one option of many. Make sure you shop around to find the best fit for you and your college student! Putting away a portion of their income into a savings account every month may seem tough, especially on a tight college budget, but let them know that their future selves will thank them for it — especially if they use that savings to begin to pay their student loan interest early.

Avoiding Junk and Building Credit! 

For better or worse, credit is a crucial part of our lives in today’s economy. It’s important for college aged kids to start building credit early. 

One great way to start building credit is to have your college student open up their first credit card. Often times a bank will offer a low limit credit card for young borrowers. This is a great way for your student to get their foot in the door. The key, however, is that they use that card responsibly. Putting small purchases on the card every month and paying it off in full, will prove their reliability to the card company, and the card company in turn, will often raise their credit limit over time.  

Another great way for your student to build credit is for them to be an authorized user on one of your credit cards. With this option, they are essentially piggy backing on your good credit. As long as you make your payments on time every month, your child’s credit will benefit from being associated with your card.  

However, while credit cards are a great way to build credit, they are also a great way to ruin it. Many students tank their credit right off the bat by abusing credit cards. The first step to making sure this doesn’t happen to your kids, is by discussing credit card offers. Your student will begin to receive offers in the mail that look great – larger credit limits and 0% interest over a few months, but just because they can get multiple cards doesn’t mean they should. This rings especially true for store cards. Store cards are going to carry a higher interest rate than average and should generally be avoided. The absolute worst thing your college student can do is to run up credit card debt on high interest cards. That is a mistake they will pay for for years to come. 

Overall, the most important thing is to make sure to keep the lines of communication open-mistakes are bound to happen. As long as you help keep them on track (at least initially), they will be making smart moves by the time they set out into the ‘real’ world!  

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