Teaching your Child About Student Finances

As your teenage children get ready for their time in college, money matters will be a constant subject. Teaching your children about student finances and how it will influence their college experience will allow you to foster transparency, as well as act as a gateway to teaching your children about the power of the dollar. Here are cost-effective ways that you can financially help your student:

Create A Budget Together

College may be one of the first times that they will be in a space where they will need to manage their own finances. From summer jobs, work-based scholarships, grants and allowances – your child will need to know how to utilize any income they will have during their stay in college. You and your child should jot down any potential expenses that may pop up during their school year. Departmentalize the list then compare the results. Take note of any expenses that your child wrote down, noting the expenses that will be the least likely to occur and underlining the importance of regular occurring expenses, like rent or food budgets. This will expose potential areas that may need more financial attention, as well as educate your child about managing expenses while they are away.

Set Monetary Boundaries

Make it very clear what you are willing and able to pay, and what your child may have to manage while they are away in college. Conceptualize this list and write it down, making sure that it does not become an emotional conversation. If you have the means to do so, then you may feel like it’s appropriate to pay for everything – this is not recommended. The point of college is for them to obtain an advanced education, as well as allowing them the chance to stand on their own feet.

Teach Them About Credit Cards

During their stay in college, your child may want to open their first credit card. Teach them the importance of a good credit score and how credit cards effect this score. Allow them to first handle a debit card and see how they are able to manage any budgets set forth by you. If you see that they are effectively managing their finances, then you can help them apply for a credit card as a co-applicant.

Financially Helping Your Child: Budgeting and Tax Tips

529 Plan: A 529 plan is an education savings plan that is controlled and monitored by the college or state. It allows you to save money for your child while limiting tax implications and liabilities. This tax-advantaged plan will shield your savings from the IRS. The 529 plan is similar to a 401k, in that your investments are tied to market performances. 529 Prepaid Tuition plans allows you to prepurchase tuition at today’s prices. Costs of a college education are increasing – by locking in current tuition costs, you will be able to save money.

Coverdell Education Plan: Similar to 529 plans, Coverdell is typically set up by a brokerage firm to pay for the beneficiary’s college education. To file for this tax-deferred account, you and your partner will have to make less than $220,000 when filing jointly.

Applying For an Apartment

Later in their college career, your child may want to live outside of university dorms. When applying for an apartment, it’s recommended that you act as a cosigner. As a cosigner, you act as a guarantor, promising timely payment of rent. You will have a more robust credit and repayment history than your child, increasing the chances of them securing their desired apartment.

These are just a few of the ways that you can setup your child for financial success. What are some of your financial concerns as a parent? Let us know about them in the comment section below.