smart spending

5 money tips for your college-bound kid

a graduation cap and a pile of money
  • Students often lack knowledge about personal finance.
  • High debt loads and low credit scores can haunt graduates.
  • Parents need to set strict ground rules on what costs they'll cover.

Covering college costs today often requires a lot of student loans, but they can be viewed as an investment in a better future.

Not so with another form of student finances: reckless personal spending.

A recent survey of 340 financial advisers commissioned by First Command Financial Services in Fort Worth, Texas, found that many college students engage in bad financial habits.

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The advisers reported that a large percentage of college students do not have a budget, charge too much on credit cards and carry high levels of debt.

"Sadly, many of today's college students do not have an adequate working knowledge of basic personal finance,'' says Terri Kallsen, a Certified Financial Planner and executive vice president of strategic development at First Command Financial Services.

New legislation aims to rein in credit card companies' exploitation of students, which some critics liken to a form of financial hazing. And financial institutions and nonprofit organizations are working to educate students in financial literacy.

But the best way to make sure a child stays out of trouble is for Mom and Dad to sit down and explain the financial facts of life.

"Parents can and should play a significant and ongoing role in educating their college-bound children about the importance of controlling spending and debt today as part of a lifetime commitment to sound financial behaviors," Kallsen says.

Following are five important topics parents should cover before shipping junior off to school.

1. Help your child build a budget. Long before students register for freshman comp, parents should hold a class in Budgeting 101.

"The student must fully understand the importance of monitoring cash flow and the limits of their budget, and how long it really takes to pay off excessive debt," says Jim Van Meter, an independent financial adviser, Certified College Planning Specialist and owner of Tahoe Financial Planning in Reno, Nev. "This could be challenging, because many parents do not deliberately do this themselves."

Sit down and help your child develop a realistic budget by identifying necessary expenses, such as textbooks, housing and food.

"This type of meaningful discussion can help students keep spending under control and avoid amassing consumer debt," Kallsen says.

2. Clearly establish financial expectations. Before your child rushes off, clearly pledge how much support you will provide for the next four years, Kallsen says.

"Tell them what you plan to provide, then stick to that plan," she says. "Do not bail them out of debt or pay for their purchases beyond the expectations you have set."


However, parents should be available for advice and emergency assistance, Van Meter says.

"Stay in communication with the student to monitor money use, and make it easy and rewarding for them to ask for help quickly if they get in trouble," he says.

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