College represents a time of independence in a young adult’s life. It may be the first time that your child has almost complete control over their own finances. From deciding how to use their spending money to deciphering student loan options, it can be difficult for students to adjust to the financial side of college living. But it’s a great time for them to learn how responsibility and planning can lead to success, both for their wallets and their lives after college.
Here are some key financial lessons that your child should know as they embark on their college journey.
Keep a Simple Budget
College is a great time for young adults to start keeping a simple budget. If they get into this habit early, it will be easier to create and manage a budget later in life when they’ll have more income and expenses to consider. Sit down with your student and discuss where their income will come from, whether it’s a work-study job, a part-time job or an allowance. How much will they have access to on a monthly or biweekly basis?
From there, have them think about the types of expenses they may encounter at school. Start with necessary expenses like gas or public transportation costs, textbooks, toiletries, and cleaning supplies. Then add in extra expenses like off-campus meals, entertainment, or clothes. By setting monthly spending limits for themselves, they’ll get used to living within their means, even once they graduate and start earning a steady income.
Your student should make sure they’re recording all of their expenses and comparing them to their budget. It’s also important for them to learn how to balance their budget if they spend more than they were expecting to in one category. It’s unrealistic to expect someone to stay under budget at all times, but if your student learns how to reallocate funds when necessary it will set them up for success in the future when they’re making bigger financial decisions.
As an example, your child may want to go to a concert with their friends. They have $100 budgeted for entertainment that month, but the concert ticket is $150. They’ll need to determine where to take the extra $50 from within their budget. Maybe they’ll save on food by buying groceries instead of going out to eat or cut down their clothing budget by waiting to buy that new pair of jeans. Or they could decide to skip the concert altogether because they know they’ll need the $150 to pay for books for the upcoming semester. Ultimately, it will be their decision as to how they balance their budget, and it will teach them how to spend responsibly.
Save Early and Often
Another habit that’s important for college students to adopt is putting money away into a savings account. Ideally, they should have designated a set amount of money to save each month. The earlier they start to save, the more they will have to work with once they graduate. Even $10 per month will add up, and it will get them in the habit of saving often instead of saving nothing at all.
It’s a good idea to have them set up a savings or investment account that’s not directly tied to their spending account. This way, they will be able to put away extra funds without being tempted to use them up for unnecessary expenses immediately. It will also ensure that they consider big purchases carefully before withdrawing money from a savings account. Have a discussion with them about their options for saving money. Maybe they want to explore investments or put money away in a less-volatile high-interest savings account. Teaching them about the different ways to save and letting them decide how to use their money will empower them to make the financial decisions that feel right for them.
Always Ask Questions
It’s important for college students and young adults to feel comfortable asking questions when it comes to their money. The more they learn about finances early on, the easier it will be for them to understand and make smart decisions later in life. Try letting them have a hand in things like financial aid. Use it as a learning opportunity and allow them to ask questions along the way. Make sure they read through any paperwork involved and take them along to meetings with their school’s financial aid office. They should understand the terms of their student loans, what their payment options are and how to set up a plan for successfully eliminating debt in a timely manner.
It can be hard for college students to understand the gravity of financial decisions when they’re young. By letting them ask questions about budgeting, loans, investments, and other money-centric topics, you’re educating them for the future and showing them that it’s always better to ask when they’re unsure about an important financial situation.
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