Five Financial Lessons for College Students

Before your child leaves home, be sure that she has learned these five financial lessons for college students and is developing good financial habits right from the start.

Budgeting. One of the most important financial lessons for teens leaving home for the first time is how to budget. Your child may feel that her financial situation is too rudimentary to require budgeting. However, the truth is that learning to budget is important even for a student whose only concern is how to make her allowance last through the month. The process of keeping track of what money comes in and where it goes can provide an important perspective on the relative cost of various purchases, how to most effectively manage cash, and how to set financial priorities.

Loans and Financial Aid. If your child will be using financial aid and loans to fund all or part of her education costs, discuss the details of her financial package with her. Be sure that she understands what part she has to play in obtaining and keeping financial aid and the long-term implications and costs of student loans, since she will be paying them off for years once she graduates.

Credit Cards. Another critical financial lesson for college students is how to manage a credit card. Starting in February 2010, credit card companies no longer can issue credit cards to a young adult under 21 years of age unless she can prove that she is able to pay her credit card bill herself or unless she has a co-signer (such as a parent) who will pay the bill if she can't. If you want your child to have a credit card to use at school, be sure that she has a clear understanding of the downsides of credit card use, including lofty interest rates and high costs to carry a balance. Help her to look beyond the appeal of a low teaser rate or a seemingly generous points/discount program and to understand why paying off her credit card balance every month should be a financial priority.

Bank Account. Ideally, a teen will have had and successfully managed a personal bank account before leaving for college. If not, some lessons on keeping track of cash inflows and outflows and balancing a checkbook are in order, since this is another area where missteps can result in costly fees.

Credit Record/Credit Score. A college student should be focused on her studies, not worried about building a credit record or what her credit score is. However, the reality is that some of her financial activities while in college are likely to affect her credit record and credit score, both of which may have significant real-world impacts on her when she graduates (if not before) and looks for a job, rents an apartment, buys a car, or purchases insurance. Therefore, she should at least have an understanding of these relationships and why keeping a clean financial record is important.

Sources:

Eileen Ambrose, www.allbusiness.com, Teach college students financial lessons before getting to campus