How to financially prepare your incoming college freshman
By Frank Jackson
If you’re like me, you have a child who thinks they know it all. My son is only six and I can only imagine how things will be once he gets older.
It may be hard to convince your student that he or she is not all-knowing, but as kids grow up and move into their college years, it is especially important that they understand how to manage their money — the spending decisions they make now can have repercussions that last a lifetime. Here are five topics to cover before your student heads off to college.
1. Explain the power of saving
Exhibiting the power of saving and compound interest is a great way to begin the education process. Use an online calculator to make your point, or consider this example: If you save $500 a year for four years, at graduation you will have $2,000 to put into an IRA at the approximate age of 22. Even if you never contribute another dime to the account, you will have a robust $36,689 in retirement savings (assuming a 7% return on investment and a 15% marginal tax rate) by the age of 65.
2. Illustrate the dangers of credit card debt
If you’re currently carrying credit card debt, use your account statements to show your student how easy it is to waste money on interest payments. Emphasize the importance of spending restraint so that credit card bills can be paid off in full every month.
3. Help establish a budget
Even if your student has no income during college, a budget can still be an effective tool. Show how to create one with categories for textbooks, entertainment, housing, and other applicable spending areas. Explain the importance of carefully tracking expenses each month, and that overspending in one area should be compensated for by cutting back in another.
4. Teach ways to keep costs down
There are multiple ways your child can keep costs to a minimum during school. Playing intramural sports and using a college ID to get various discounts at movie theaters and sporting events can help keep entertainment costs down. Encourage your student to get a part-time job as well — every extra dollar counts, and time spent working is time that money cannot be spent.
5. Encourage good study habits
Unless there’s a radical shift in the hiring landscape, competition will still be high when your student graduates and starts looking for a job. Extracurricular accomplishments and work/volunteering experience look good on a resume, but a stellar grade point average is what most impresses potential employers. This could be what separates your student from the pack during his or her job search.
If you’re struggling yourself for ways to keep college costs down, browse the UniversityParent website. It offers deals on numerous products, such as computer software and textbooks, and resources on financial planning and tax strategies. It’s important to prepare you child financially for college — just be sure to do your own homework first.
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