I recently overheard a conversation between my just graduated from college nephew and daughter. The conversation went something like this:
Nephew – I was trying to negotiate purchasing a car and had to get my dad on the phone.
Daughter – What, couldn’t you figure out how much to pay?
Nephew – I didn’t know what an APR rate was, didn’t know what my credit score was to know if I was getting a good deal or not.
Daughter – I was trying to consolidate my school loans and also did not know that or how to figure out if I could afford the monthly payments.
Nephew – In college or high school no one taught us anything about money. No one taught us about a budget, checking accounts, credit cards, interest rates and all of that!!!
Does this conversation sound familiar? I hear it all the time from kids high school age to well into their 30’s. No one keeps a checkbook register anymore or balances their accounts. Electronic banking has made it easy to pay online and easier not to have to keep track of monies coming in and going out. Most just check their balances when they need to.
Here are some basics your child should know before they head off to college:
- Budgeting – This is essential for a successful financial life no matter what age, income bracket or profession a person is in. In a simplistic form, I advised my two children to keep a spread sheet of what their monthly expenses. Break them down between recurring, basic and discretionary. Total those amounts so they know what amount of money is necessary to live on. They also need to know from where and how much money they have coming in on a monthly basis. I had my daughter divide her savings by the number of weeks in the school year. I pointed out this is all she has to spend. If, she overspends one week, she needs to spend less the next.
- Checkbook – Set up a checking account before school starts. Preferably at a local bank that has branches in the city where the college is located. Add mom or dad’s name to it to make it easier to make deposits, etc. Teach them how to write a paper check and balance their account so they always know what they have and can catch errors quickly.
- Credit Cards-Once in college, credit card companies will actually set up booths at the school to encourage students to apply. It is better to select one prior to leaving home and teach them how to use it responsibly and not build up debt. Teach them the real cost of a purchase factoring in the interest.
- Savings – Encourage them to maintain a savings account and save a percentage of their earnings for emergencies or future needs /wants. This will teach them to prioritize and the difference between needs and wants.
- Organize and keep safe personal, academic , medical, insurance records, etc.
These lessons will last a lifetime and save much hardship and angst.
Pat Grenier is a CFP® and General Partner with BRP/Grenier Financial Services in Springfield, MA. Securities offered through Cadaret, Grant and Co., Inc., Member FINRA/SIPC. BRP/Grenier and Cadaret, Grant and Co., Inc. are separate entities.
Pat can be contacted by phone at (413) 736-6712, or email her at firstname.lastname@example.org