Crucial Conversation Before Heading to College
Kathy Longo, CFP®, CAP®, CDFA Wednesday, 27 May 2015
With my oldest daughter graduating from high school, we have been busy with graduation celebrations, planning for freshman orientation, and making lists to prepare for life in a College dorm room. It has also been an opportunity to discuss finances together and set expectations for life beyond high school. Here are some key topics for your conversation:
State your expectations around college funding. If you have saved enough money to cover four years of college tuition, communicate this fact along with your expectation that your child needs to complete their degree in four years or the 5th year is their responsibility. Whether your incoming freshman has decided on a career path or not, the first years in college offer an opportunity to take the required classes as well as explore areas of interest. There are many ways for students to take control of their freshman year to ensure the best chance of graduating on time by taking their education seriously, focusing on grades, planning out their classes and doing the exploratory research to determine their major early. Setting clear expectations with a clear financial impact can encourage your child to keep on track.
Create a Spending Plan
Make a plan for living expenses at college as well as income expectations. Do you have expectations that your child work in the summer or during the school year to pay a portion of their living expenses? Identify the spending categories such as food, books, personal care, entertainment, or clothing. Discuss the difference between wants and needs as you set the budget, while clearly explaining that needs must be paid first. Tracking tools such as an app called Mint.com makes it easy to set a budget, track expenses, and monitor account balances. They can also receive alerts via email or text message to keep on top of their spending and account balances. If you will be funding some or all of the living expenses, determine the mechanics and whether you plan to transfer funds each semester or monthly. It is important to consider the type of spender you have and their personal level of responsibility. Budgeting is a great life long skill, but it takes practice. It may be helpful to assess the budget after the first month to reign in spending or refine the initial budget.
Credit Can Be Good
Opening a credit card with a small lending limit is a great way to build and establish a good credit history. This will be even more helpful once they graduate and need to make some larger purchases such as cars or homes. State your expectations on appropriate uses for the credit card as well as limitations. Above all, stress the importance of paying the bill on time and being responsible for one’s own credit. Many students do not have the income to qualify on their own and have limited credit history; in this case you will likely need to co-sign with them. Be mindful that your credit is also on the line as a co-signer, and it is important to track that the bill is paid timely.
Keep an Eye on Your Child’s Identity
Each of the three major credit reporting agencies (Experian, Transunion and Equifax) offer the opportunity to pull a free credit report annually. You can alternate each of the agencies every four months and receive more frequent updates. Annualcreditreport.com offers easy access to pull this information either online or by sending in a short form and having the reports mailed to you. Children have increasingly become targets for identity theft. By checking on your child’s credit report, you can avoid this while keeping an eye on any other credit being established.
Plan for the Unexpected
Now that your child is 18, they need to sign a durable power of attorney, a health care directive, and HIPPA authorization which for many States is included as part of the health care directive. Without these documents, you will not have the authority to make health care or financial decisions for your child even though you are still financially responsible for them and have them covered on your health insurance. These documents can also be helpful in less severe situations such as when your child needs assistance with a financial transaction or if they study abroad. Once these forms are completed, it is good to have them in an electronic format so they can be accessed easily and forwarded if needed.
The next few months of college preparation will provide multiple opportunities to incorporate financial discussions while shopping for dorm room items, acquiring necessary technology, and getting everything in place for your child’s first extended experience with financial independence. It is a great chance to establish or reaffirm lines of communication between parents and your child about money matters, a topic that can be a source of stress and discord. However, working together with your child to clearly understand the financial implications of their college decisions can establish an important foundation for long-term success.
About the Author
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.