09/09/2024 | Press release | Distributed by Public on 09/09/2024 23:27
So much can go into sending your child off to college for the first time: helping them pick out dorm furniture, ensuring they have the books they need, and talking them through how to live with new roommates.
College can also be a time of firsts from a financial perspective. It is often the first time that many students are in charge of at least some of their financial decisions. Data shows that they may not be prepared to take this on. A 2024 financial literacy study by researchers at Auburn University polled 31,000 students on six basic financial questions, and fewer than half (46.2%) scored at least four right answers.
Regardless of the level of financial support you will be providing to your new student while they are away at school, this can be a good opportunity to start laying the foundation of a smart financial mindset. There are several key skills with which to equip them before dropping them off at orientation.
For college students, money can often be tight. This is an ideal time to teach the basics of budgeting, and to begin to help your child take accountability for their own financial choices.
At the most basic level, they should start learning to categorize expenses as needs (schoolbooks, groceries, etc.) and wants (clothes, nights out, concerts, new technology, etc.). Once needs are identified they can see how much they have left over for more 'fun' expenses.
Those who have a little more cash on hand might consider getting more granular with their budget, breaking things down into relevant spending categories. There are a number of easy-to-use budgeting apps that can help with this.
As mentioned, there may be some students who are bringing in a bit more money from part-time jobs or internships, so they may be able to explore a more detailed budget that also includes a bucket for longer-term savings. This presents an opportunity to teach your child about the power of interest and compounding - making their money "work" for them.
Any extra cash for savings typically shouldn't just sit in a checking account - even if it's only a small amount. You may want to explore with your child something like a high-yield savings account, which can earn a higher amount of interest over time and serve as a savings vehicle for things they may need money for down the line, such as paying off student loans, buying a new car, or putting the security deposit down for their first post-grad apartment.
To take it a step further, many responsible students may want to dip their toes into investing. Teaching them to pop savings into an index fund, for example - which is a relatively low-risk investment, compared with other funds - can teach them how money can compound over time. It's not too early, even if they are putting in $10 a month.
With that being said, it's important to emphasize the long-term nature of investing. While it's easy to get caught up in meme stocks and what people are saying to buy online, there are rarely "get rich quick" schemes in investing. It may be advisable to focus on diversified investments that you plan to stick with for a while. But keep in mind that all investments are subject to risk, including the loss of principal.
Living independently can be a good time for your child to apply for their first credit card. With limited credit history, they may not be able to qualify for a standard credit card, but there are some solutions. One would be naming them as an authorized user of a credit card under your name. This allows them to build credit history, even if you are paying the bills.
However, it's important to remember that you (and your credit score) will be responsible for any spending they rack up. There are also types of credit cards, such as store cards or student cards, that are often easier for the student to qualify for.
Once your student has researched the various options and decided where to apply, you both should first review the credit card agreement, and make sure they understand the interest and fees associated with an unpaid balance. They should understand that a credit card isn't free money and that spending more than they have can have long-lasting consequences to their credit history. This is also a good opportunity to emphasize the importance of paying off the entire balance each month.
Learn about Old National's credit card optionshere.
Most college students are extremely connected digitally, from spending time on social media to completing and submitting school assignments online. Because of that level of connectivity, online security is even more important.
Younger people tend to be connected across multiple devices and have clean credit reports, making them ideal targets for bad actors. To prevent anything from happening that can negatively impact their futures, remind your student to regularly check bank statements, change passwords often, use secure sites and apps, and be cautious about what personal data they input and where.
Having these types of conversations with your child can be daunting, especially if you aren't as well-versed in these topics as you would like. If you work with a financial professional, chances are they'd be happy to sit down with you and your child and walk through the most important financial topics. Sometimes a neutral third party can help.
College presents an opportunity for independence and personal growth. With a little guidance, this can apply to your child's financial well-being, too.
This article was written by Leila Evans, CFP® fromKiplingerand was legally licensed through theDiveMarketplaceby Industry Dive. Please direct all licensing questions to[email protected].