Educating children about fiscal responsibility should begin well before the day they leave for college. However, it’s during this exciting new phase of life that they will likely have the first real opportunity to put that fiscal education to work. It’s critical that those children entering their college years have the skills necessary to budget and keep expenses in check. As the next couple of months mark “back to college” season, it’s a great time to look at some ways that you can help your child learn how to create a budget- and stick with it!
Create a budget with your child
The very first thing you’ll want to do is sit down with your child and create a budget. Remember, just like your own budget, this budget will include money that is coming in (income), and money going out (expenses).
First, you’ll want to list all possible sources of income.
Hopefully your child will be spending more time studying than spending money, but inevitably there will be expenses. Consider everything from car and cell phone expenses to social expenses like movies and the occasional dinner out. Determine if your child is going to have a meal plan through the school or if he/she will also be paying for weekly groceries. Don’t leave out extracurricular on-campus activities such as sporting events and sorority/fraternity costs.
Now that you’ve determined your student’s income and expenses, if the expenses are much greater than the income, you may need to re-work the numbers and reconsider areas that your child might be able to spend a little less.
Decide who will pay for what
Next, it’s a good idea to decide who is going to pay for what. If you and your child know the financial expectations per month, it will be good for both of you. Go through the list of expenses and make some decisions before the first day of school. You can always revise later on, but it’s good to have a set plan before too much time goes by.
Additionally, if there are big ticket items throughout the year, determine how you will pay for them. Will your child have a credit card to use for those items or in case of an emergency? If your child does have a credit card, how much usage is permitted beyond what is necessary?
Remember, budgeting means that your student will need a bank account. Be sure that you help your child select the right account for their needs. You’ll want to look for low fees and convenient ATMs both for financial and safety purposes. On some campuses, a student ID doubles as a prepaid debit card. If this is the case, you’ll want to be sure to determine the spending limits on that ID and will want to be sure to include this as a line item in your budget.
Staying on the budget
Next, it’s up to your child to stay on the budget. This will in large part have a lot to do with your involvement and follow-up. While no college student wants to be micro-managed, it’s best to come to a mutually agreeable option in terms of how much follow up you will have. Will you review the budget monthly with your child? Or weekly? In the beginning, it might be advantageous to encourage your child to keep a daily spending log. This will allow them- and you- to see exactly where the money is being spent and will assist with future budget adjustments.
Plan for emergencies
No one wants to consider an emergency situation, but they happen. Be sure that your child keeps a small emergency fund in the event of the unexpected. By having an emergency fund- comprised of cash- your child will be less likely to be stressed out by the situation and it will alleviate the need to rely on credit.
Remember, using cash to pay for everyday transactions is a great way to keep spending under control. The convenience of credit cards can be overly tempting!
Have you and your college student created a budget yet? Teaching your children good financial habits now will benefit them greatly down the road!