Financing Your Child's Freshman Year

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.

How much money should you give your freshman?

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.

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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.

How do you suggest parents handle giving money to their kids?

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.

Should parents give their children the money in cash or credit?

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.

Should students use their family's bank account or should they have their own?

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.

Before your child sets up his/her account, they need to ask about the following: What is the minimum balance requirement? How much is overdraft protection? Are there any ATM fees associated with the account? And, because students spend most of their time online, is there an online banking option and if so, is it free?

Additionally, you may want to consider setting up a small savings account for them to access for emergency use only. Therefore, you can link their debit card to both the checking and savings account, which will save your student (and you) major fees in case they spend more than they have. Finally, it is a good idea to have your child ask the bank to send duplicate statements to their home address for their freshman year; that's an easy way to keep track of your child's spending.

What about credit cards?

Credit cards are fast becoming as synonymous with college as dorm rooms and mascots. In fact, according to a survey by the U.S. Public Interest Research Groups, two-thirds of all college students have at least one credit card and the typical student will graduate with nearly $3,000 in debt.

I am actually a proponent of a student getting a credit card at college. Having a credit card is a good way to establish credit and is an important lifeline in case of a real emergency. However, the credit card should not be a parent's. It should be in the student's name and maintained by them only.

Finally, what about insurance?

Unfortunately, there is no simple prescription for health insurance for college students. The two most common ways are to keep your child on your family coverage (most plans let you do this for children up to age 25 as long as they are full-time students) or to sign them up for insurance directly through their college or university. Premiums and deductibles vary depending on the school, so make sure you ask the financial aid or student affairs office.

Keep in mind, many schools offer their own health centers with routine clinical services at no charge, but students are typically billed for X-rays, procedures and other treatments.

There are a couple other points to consider with insurance. One is that your home insurance usually covers a student living in a dorm room. However, the coverage amount varies, so check with your insurance agent.

And, finally, when it comes to your car, you should also check in with your agent and let them know your child is going off to school. In most cases, your premium may decrease as much as 30 percent if your child is attending a school outside of your local area.

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