5 Financial Talks to Have Before Your Kid Leaves For College

It’s mid July and the summer weeks are flying by. Soon it will be August and thousands of parents will drop their kids off at college for the first time. As the day that their child leaves for college draws closer, most of those parents are wondering “Is my child really prepared to be on their own?”

In fairness, I won’t be one of them. My child is still awaiting front teeth and mastering the art of riding a two-wheeler. I can wait a few years before I push Little Bit through the gates of her chosen college or university.

That said, I’ve definitely noticed some Facebook friends preparing their kids for life away from home for the first time. They have about 4 weeks to make sure their child is ready for dorm life, apartment life, or just life. Others will be helping their children apply for college this year with an eye toward matriculating Fall 2017.

So parents of this year’s college-bound students, you have about one more month to cover Adulting 101 before your fledgling leaves for college. High school parents, you have a little longer. While there are probably a ton of topics to cover, I’m going to concentrate on 5 financial topics you need to discuss with your child before he leaves for college.

If you know you’ve had these conversations, well and good. If you haven’t, get your financial heart-to-hearts planned now. A little time spent talking now can save you and your college student a lot of headaches later.

What You Will (and Will Not) Pay For

When I was selling used books, I’d see this scenario every year.

  • Student gets money from parent.
  • Student goes to buy textbooks.
  • Student calls parent to pay for books.
  • Parent tells student “I’ve already given you money for books.”

Or, learn a lesson from last year’s story about the girl who went through a $90,000 college fund in 3 years and had no idea how to pay for her senior year.

Most parents know to what degree they can support their children in college. Sometimes, though, they make assumptions that their child understands. If you expect to give your kid some spending money every semester, be clear that it’s every semester and not every month. If the student is getting money for the year (or for the entire college experience), be clear about it.

Don’t take a chance. Spell it out, preferably in writing. Have a plan that includes what you’ll pay, when you’ll pay it, what you expect the student to pay, and how you expect them to pay it. If you expect that your support requires your child to maintain a certain GPA, spell it out. If you expect them to work during school to pay for tuition or for their spending money, spell it out. If your support is for 4 years and 4 years only, spell it out.

It’s better to have this conversation while your child is still selecting a college (and its corresponding expense) but do make sure you have it before your child leaves for college.

What Constitutes an Emergency (or a Need to Talk)

One of the tenets of personal finance is having an emergency fund because Life Happens. Life Happens for college kids, too, no matter how well they plan. Careful students may be able to minimize it, but there may be expenses that you haven’t planned. They need to have a plan to handle emergencies.

Even if your child’s emergency plan is “Call Mom and Dad,” they should understand what an emergency actually is, and when they need to share information with you. Hospitalization is an emergency, but a terrific opportunity to go to Acapulco for spring break that wasn’t budgeted probably isn’t.

There’s a lot of room between the two, though.

For instance, part of the reason I ran into credit card trouble was that I put expensive car repairs on my credit card in college. Looking back, I might have been much smarter to discuss the repairs with my dad. I might have still paid for them, but maybe not with compounding interest. Instead, I handled it poorly, and paid the price well into my 20’s.

The other thing to consider is that things change in college, and your student may need to talk to you about it. Maybe you expect your child to work part time through school, but then she gets an opportunity to study abroad or take on a meaningful unpaid internship. Maybe your child signed up for a class that kicks their butt even when they are putting in a lot of effort. It’s a two way street, too. Your circumstances can change, and maybe you can offer less (or more) support than you’ve previously agreed.

I think it’s important to set expectations with your child, but to recognize that sometimes expectations need to change. Make sure your child understands when they need to communicate their changes, challenges and opportunities so that you can adjust strategies.

Credit, Debt and Interest

Your child leaves for college about the same time he can legally sign binding contracts. Make sure he understands what he might be getting into before they sign for loans.

For most students, going to college means taking on debt. Many will take on student loans just to pay tuition. Even those who don’t will likely be offered credit cards. Students need to be wary of how debt and compounding interest can compromise their future lifestyle. All too many aren’t, and take on more debt than they need to finance the lifestyle they want in school.

Jon likes the saying “If you live like you’re earning a professional’s salary when you are a student, you’ll be living like a student when you’re a professional.” 

Your college student may not be able to avoid all debt, particularly student loans. He needs to understand that interest is accruing and compounding, even though he may not have to make payments in school. He also needs to think about what level of student loans he’ll have at the end of college, and what sort of salary he’ll need to pay them off. Also make sure he knows that for the most part student loans never go away.

Next, make sure your student understands credit card fees before she has the opportunity to get in trouble. Explain that a single missed payment not only mean extra fees, but can also cause a reasonable interest rate to go sky high. (In NC, the maximum rate is 29.99%. Ouch!)

Credit is a useful tool only if you understand it. Make sure your college student understands.

Taxes

While you may not actually need to have the conversation before your child leaves for college, it probably needs to be on your agenda for their first Christmas break. Discuss income taxes before their first income tax season on their own.

Maybe your child has already had to fill out tax returns before she leaves for college. Chances, are, though, if she’s needed to file a return, you’ve helped her. You may have even grabbed her W-2 before they had the chance.

Once your child goes to college, he’s probably going to start getting that W-2 directly. Many college students don’t understand tax rules about exemptions and student credits, though, and he may try to fill out his tax returns for the first time. If you don’t discuss income taxes with him first, he may do things that complicate your tax situation unnecessarily.

Which can cost you money, aggravation, or both.

It’s not uncommon for college kids to fill out tax returns claiming themselves. Sometimes, that’s true. If your child is under the age of 24 and a full time student whom you provide at least half of the support (not including scholarships and grants) she is your dependent. IRS don’t allow the same exemption to be claimed twice.

He may to try to claim tax credits for education that you qualify for. You can’t both take the credits. Also, a student under age 24 can’t benefit as much from the refundable part of the American Opportunity Credit except under very strict circumstances.

Talk to her about her income tax return before she is tempted to fill it out incorrectly. Otherwise, you may both need to amend your tax returns.

How to Network

Most adults have realized that a lot of being successful is less about their knowledge base than their relationships.

Unfortunately, a lot of teens don’t realize this, particularly kids who have been successful academically. For years, they have been judged and rated on how well they have done in school.

Most college students still worry about grades. Grades may matter, but excellent grades will only get kids so far. In a world where college grads struggle for good jobs, it’s more important to make connections and to learn to leverage those connections.

Need an example of how to have this conversation? Read this article over at Debt Discipline, where Brian explains how he guided his son into recognizing and leveraging networking opportunities.

Talks Before Your Kid Leaves for College

There’s a whole host of information to cover before your child is on their own for the first time, and it’s difficult to cover them all even when you start early.

Your child will be making a ton of new decisions both because she is away for the first time, but also because she’s reached an age where he can legally make binding decisions. That’s a lot of new responsibilities.

You’ve spent a lifetime covering the basics with him: how often to wash his sheets and towels, when to go to the doctor, and how to respect himself and others. Make sure that financial topics are part of those basics too.

What conversations were most useful with your parents before you left home for the first time? What’s the one you wish you’d had?

 

5 Conversations to Have Before College Big

*Part of Financially Savvy Saturdays on brokeGIRLrich, Disease Called Debt and Friday Night Shenanigans*

18 thoughts on “5 Financial Talks to Have Before Your Kid Leaves For College

  1. These are all very important conversations to have with children going to college. My little sister just started college over the summer so I’ll go ahead and make sure my parents have gone over these things with her.
    Dollar Engineer recently posted…Blogs Make You More Productive?My Profile

    • That’s a great way to help both your parents and your sister. Plus, sometimes college kids will be much more receptive to information from family members other than parents.

  2. Great list of talks. I will have to deal with this in about two years and it makes me nervous – all great advice I will follow.

    I teach self-defense classes and have often been inundated in June and July with (often urgent) phone calls from parents that have girls going off to college. This may be something to look into as well (though I would start teaching this younger if it is a concern).
    Amanda @ centsiblyrich recently posted…My Best (Non) Budgeting Tool: Yes I still use a checkbook register – and maybe you should too!My Profile

    • Yeah, there are a lot of other non-financial talks to have before kids are on their own that I didn’t touch on. Staying safe (and keeping your friends safe) is a big one. So is keeping your internet presence acceptable to future prospective employers. I do think it’s better to discuss both of those things quite a bit earlier though…high school kids are at risk too.

      I dread having the talk with my daughter when she gets older about consent, reputation, and putting yourself into risky situations, but I’d much rather have the talk than have her put herself in jeopardy.

  3. We are working on the first point right now and it is a challenge. We went on our first college visit with my son last week and it was eye opening to him in terms of the costs. We also sat down and told him what we will pay and what the expected contribution would be from him (the same as his sister). For an 17 year old to wrap their heads around numbers like $40,000 a year is such a stretch. We got out a mortgage amortization schedule to show him what that looks like over 30 years. Then showed him a budget with all the other expenses. It helped a little – but still was pretty overwhelming.

    • So smart to be looking at these numbers before his college decision is made, particularly with the amortization schedule. $40K/year is really expensive, and a lot of graduates don’t make that much per year in their first few years in the workforce. Good luck with getting him launched (and hope he finds a school he likes that’s a little less expensive.)

  4. Great tips, thank you. We live in South Africa and my son is off to college in Canada really soon. I’m terrified. We definitely need to have a chat. Thank you so much.

    • Wow! Parents worry enough about sending kids a couple of hours away, but a world away? I’m sure there’s a ton of logistical hurdles to handle over and above the normal discussions. Good luck!

    • Thanks Lisa. I know so many people (including me) who have that same experience with their first credit cards. I’d love for learning about credit card debt by ways other than hard experience to become the norm.

  5. I found myself squirming about the first “talk”. My parents were excellent with money and very generous with their 5 children. But they did not talk about it. It was assumed that we would each take it in through osmosis – and it seems that 4 of us did. “Sometimes, though, they make assumptions that their child understands.” That was certainly the assumption my parents had – and I was clueless. With our own children, we are very clear about what we will and will not pay for in their post-secondary education. Some children will “get it” by osmosis, but some of us only understand when it’s spelled out in detail.
    Prudence Debtfree recently posted…A Brief Step out of Frugal Mode – Good for the Long Term GoalMy Profile

    • I know that my parents did not talk to me about money hardly at all. I wish they had…I made a lot of mistakes. Maybe I had to make mistakes to learn the lessons. I know they were far more explicit about my learning good manners (which I’ve mostly maintained), political affiliation (where my parents and I are in strong agreement) and religion (which I’m slowly moving back to after a 25 year hiatus). Money matters were sort of taken for granted, and my brothers and I have all had to figure things out for ourselves.

      Jon’s parents were much more open with him about their finances and giving financial advice. They gave him very clear guidelines about what they would and wouldn’t do for him. It seems a much better system, and we’re trying to follow their example, whether it’s discussing what educational opportunities we can and will pay for or teaching Little Bit about what things cost relative to each other.

      I know from the things you’ve written you’ve put a lot of effort into making sure your children are financially literate. Clarity and good communication seem to be your hallmarks.

  6. I wouldn’t have even thought about the tax implications! But when I look back, I remember assuming that I could claim myself, even though I lived with my parents throughout my college years. Luckily I was doing taxes at the kitchen table and Mom walked me through it. I have a couple of middle schoolers, so while I’d like to think that these conversations are light years away, in reality they are just a few years ahead of me!
    Jamie @ Medium Sized Family recently posted…No Money for Christmas? 7 Ways to Pile Up Christmas MoneyMy Profile

    • Your mom was lucky to walk in at the right time! It could have taken months to straighten out, especially if you had filed first. It’s a little quicker to find out there is a problem with the multiple people claiming the same exemption if everyone efiles…the IRS just rejects the second return. Still inconvenient to get the problem fixed, though. if the wrong person claims the exemption before the right one.

      Middle school may be a little early for these topics, but it’s probably better to start bringing up “who pays for what” before the college search begins in earnest.

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