Teaching College Kids About Money

Parents' often worry about their kids when they leave for college. Parents worry if the college bound kids are in a safe environment that encourages their growth, learning, and development. We've heard that the college years are some of the best years of our lives and a time to reach personal independence. This is also the time to prepare the kids for financial independence. In addition, it's a good time to help them begin to establish credit and learn to control their spending habits. Controlling spending is a very hard concept for most college bound kids because credit card companies target them, making it easy for young students to apply for credit cards even without a full time job.

Establishing Credit

Research shows that college kids who establish credit during their college years have an easier time acquiring more credit after graduation. This applies to car loans, mortgages, other credit cards. Establishing a good credit record takes the new college graduate a long way towards establishing their financial independence. What is not encouraged is taking out several credit cards during college and running up huge expenses that they are not able to pay. This often happens to college students and leads to bad credit ratings and bad credit reports.

Debit or Credit

Should you give the college student a debit or credit card? Well, this depends on the financial maturity of the college student. If the parent does not trust them with a credit card, then a debit card might be a good alternative. When the student uses their debit card they are using their own money in a banking account. Consequently, the holder of the debit card is limited to spending the amount in the account. Once the student proves they can handle the debit card then the parent might place them on their credit card and issue them a card for purchases like food, books, transportation, and other small miscellaneous items. In the long run this is safer because credit card purchases are backed by the financial institution that issued the card if the card is lost or stolen. Debit cards are not covered.

More Money Tips

Encourage the Student to open a regular savings bank account.
Encourage the student to open a checking account.
Encourage the student to establish an emergency fund of one or two hundred dollars
Warn the student about applying for too many credit cards.
Never co-sign for credit cards with the college student if you don't want to be responsible for their debt.