Heather Murray’s Good Question: Financial advice for college-bound freshmen

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Question: My son is leaving for college. What type of financial advice or rules should I share with him before he goes?

Answer: For most young adults, college is the first time handling their own finances. For some, it means a phone call to mom or dad when the checking account is getting low. For others, it means a part-time job to help cover costs. Whatever the case may be, it’s important for your young adult to understand the reality of the financial situation and use good judgment when it comes to money matters.

Before your young adult leaves for college, it’s important to have a frank discussion about financial realities. How much are you willing to subsidize? Make sure your child understands what your limit is and be honest with how much you’re willing to help.

Now is the perfect time to introduce budgeting to your son if he has not yet been exposed to it. Help him figure out what additional expenses he’ll have while at school and figure out how much money he will need to cover those costs. If he lives in a dormitory, food costs are covered. However, it’s likely that he may keep some groceries on hand in the room.

Also, factor in entertainment costs, such as meals and activities off campus. Help him determine what a reasonable amount is for miscellaneous expenses. Estimate how much additional spending he will be permitted to do, and if possible establish a weekly entertainment budget.

Most likely, your son will be accessing his funds through a debit card connected to his checking account. It’s important for him to understand how to keep his checking account in balance. Encourage him to track his expenses and keep a real-time accounting of what is in the checking account, not just what the balance says online.

Explain that the balance he sees when he logs into online banking does not reflect the items that are still outstanding and that have not cleared his account.

Keeping track of expenses will help you both get a handle on whether he needs to look for part-time work to supplement his income.

If your son’s semester income is coming in the form of a refund check from student loans, consider not accepting the refund. While working part-time is not always ideal for a college student, passing on the semester refunds will save thousands in additional student loan debt and thousands in interest on that debt.

College is also typically when young adults are first exposed to credit cards. However, with the passage of the Credit Card Act in 2010, it’s difficult for young adults under the age of 21 to obtain a credit card without a parent co-signing or without demonstrating he or she has significant income.

Now is a good time, though, to begin building a positive credit history for your son. The length of your credit history accounts for 10 percent of your credit score, and to build credit you have to use credit. If it’s something you are comfortable with, consider co-signing for a credit card for your son. Teach him how to use credit responsibly. Encourage him to charge a small amount monthly and have him pay the bill and pay it on time. Bill-paying history has the greatest impact on your credit score. It accounts for 35 percent of your total score.

If you’re not comfortable with an unsecured card for your son, consider contacting your bank or credit union about a secured card. A secured card is tied directly to money held in a savings account, so if the bill is not paid, the money is withdrawn from the savings. The purpose of the card is to allow a consumer, who may be a high risk for an unsecured card, to build a positive credit history. Before signing up, make sure the bank or credit union does report the payment activity to the credit bureaus.

Sending your son off to college with this information will enhance his education outside of the college classroom and help better prepare him for life after school.

Heather Murray is manager, regulatory compliance and education, for Advantage Credit Counseling Service (dba Consumer Credit Counseling Service). For more information about the agency’s services, please visit www.advantageccs.org; or to access the free online budgeting tool, go to www.onlinebudgetadvisor.com. If you have money or credit management questions, you can email Ms. Murray at hmurray@advantageccs.org. Please provide your name, address and daytime telephone number with all inquiries. Ms. Murray tries to reply to all inquiries but, because of the volume of questions she receives, she cannot always respond.

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