College means a great deal more independence for many students, but it also means more financial responsibility. As a parent, teaching your kids about how to handle their money can be quite a challenge. "Good Morning America" financial contributor Mellody Hobson appeared on the show today to answer some frequently asked questions regarding your kids and money.
First and foremost, you absolutely need to sit down with your child before he or she goes off to school to talk about spending and budgeting. The operative word here is budget. The reality is parents do not like talking to their children about money. Charles Schwab released a survey on parents and money earlier this year that found that 70 percent of parents teach their children how to do laundry but only 43 percent talk to them about how to pay bills.
Most schools actually do a lot of the legwork for you because they provide a pretty accurate estimate of how much your child should expect to pay for "other" expenses. Call your school's office of financial aid to ask them for their estimate.
Additionally, student loan lender Sallie Mae has a terrific Web site with a calculator to estimate college costs that automatically populates information based on the specific criteria you enter. The site is www.plan.salliemae.com. While it would be ideal for your freshman to get a job, some colleges and universities prohibit students from working during their first semester on campus, so you may be the bank of last resort for them.
I think one of the best ways to teach your child about the importance of budgeting is to handle their account in similar fashion to how they would receive a paycheck from their employer. I recommend giving children a hall-pass for the first semester until they get their sea legs and figure out the ins and outs of college.
I then suggest you set them up on a bi-weekly pay schedule, so if you give them $200 a month in spending money, you give them $100 twice a month. If the funds are coming from your own paycheck, you can likely set up a direct deposit to their account to remove the hassle and eliminate the off-chance that you forget to pay them.
Both. However, the worst thing you can do is give your child the green light to call you whenever they need money. Set a budget and stick to it. Cash is obviously essential, but I am a big fan of using a debit card -- so put money in an account tied to a card.
The one thing I need to caution parents on is that while a debit card does provide a greater safety net for saving and budgeting than a credit card, you can actually still spend more money than you have in your account. In fact, according to the Center for Responsible Lending, 46 percent of all overdrafts are triggered by a debit card. And, overdraft fees can start at $8 and go as high as $35.
Your child should definitely have his or her own checking account. This should be one of the first things they do when they get to campus. In most cases, the bank affiliated with the college or university is the best choice because of ATM locations and reduced fees.