If your teen is heading off to college soon, there’s a lot to plan for. This includes how to prepare them for financial independence.
Hopefully you’ve been diligent in educating your child about money, and your teen’s ready to manage a budget, bank account, and personal spending without your daily supervision. Even so, it’s wise to review essential teen financial literacy objectives. Follow our six-month game plan to teach your kids about money before college.
March: Review Money Basics with Your Teen and Set a Budget
With six months on the clock, it’s crunch time to ensure that your teen’s financially ready for college. Focus on the following essentials:
- Develop a realistic spending budget that replicates expected personal expenses at college. Make your teen responsible for those items, starting now, but with some oversight.
- Determine how much of the budget you’ll support, versus what your teen will need to finance from personal savings or earnings.
- Establish a bank account, with a debit or credit card.
- Turn off the overdraft function.
- Credit cards should have low limits.
- Shared viewing allows for supervision and guidance.
- Utilize technology like Mint.com, which helps your teen set budgets and track spending by category. Let technology be the nag, not you!
It’s also time to talk about who’s paying for college, and how. Do you have the savings? Will you be using your kid’s savings? If loans are required, who’ll repay them? Open conversation is vital to ensure that you and your teen make the best college choices together.
April: Encourage Real Life Money Management and Talk About Summer Jobs
Month two of teaching your kids about money before college involves loosening the reins and encouraging your student to assume management of their real-life future college budget on their own. You’ve hopefully completed a dry run, and made any necessary tweaks, so now it’s time to put your teen in charge. Monitor, and offer constructive suggestions, but remember that you won’t be able to micromanage come September, so stop now.
If your teen runs out of money, the best lessons you can teach are how to better stretch their dollars and how to get out debt. Both are key to averting budget busting events in college and as an adult. Only make an advance or loan if it’s essential. Even then, you should require your teen to pay you back.
This is also an ideal time to talk about summer jobs. Learning to support themselves from earnings is an essential life lesson for your teen. Discuss how much of summer earnings should be spent, versus what needs to go to taxes or be saved for college.
May: Think About High School Graduation Gifts
High school graduation is around the corner, and for many lucky teens, this means a shower of gifts. Talk with family members in advance about what’s most appropriate. For example, consider dorm room needs and ask family and friends to help with practical gifts. Discuss with your teen how any cash gifts will be allocated.
June: Revisit the College Budget and Finalize Additional College Expenses
By now, college costs should be more defined, so update your teen’s future budget. For example, now’s an ideal time to evaluate what meal plan your teen will have at college, and what’s covered versus what they’ll need for eating out, clothing, and other incidentals There are many other expenses to consider as well e.g., travel costs, books, equipment and even laundry, depending on the college your teen’s attending. Be sure to identify and factor these additional considerations into your teen’s budget now.
Your teen should be capably managing their budget by now, continuing to learn from both successes and mistakes.
July: Prepare for College Dorm Needs and Organize Other Essentials
Mid-summer means fun but also some serious essentials.
It’s fun to plan and purchase for your teen’s dorm room. Use seasonal sales and discounts to stick within budget, and be sure your teen is realistic about wants versus needs.
On a more serious note, every 18-year old needs basic planning documents in place, including a medical directive and power of attorney. Hopefully, they’ll never be needed, but they will prove essential in the event of an illness or accident.
August: Review College Banking and the Budget
As the first day of the semester approaches, it’s time to make sure bank account structures are working correctly to ensure a seamless transition as your teen starts college. Make sure they can use their account without transaction fees on campus or make necessary banking arrangements. Most importantly, revisit the financial plan with them one last time, reviewing objectives, expectations, and boundaries.
If you’re planning to pay for some or all of college, you also need to get your own finances in order, well in advance of the first tuition bill arriving. SageVest Wealth Management, the creator of SageVest Kids, is a top-ranked fee-only wealth management firm, offering comprehensive investment management and financial planning services to individuals, families, and others throughout the DC Metro area and beyond. College considerations are frequently part of our client discussions. Please contact us to ensure that you’re making the smartest decisions, relative to investments, taxes, retirement planning, saving for college, and other personal financial considerations.
