College Financial Planning: With Freedom Comes Responsibility
Addressing the trials and tribulations that arise due to a lack of financial acumen among many college students and young adults
With football season in full swing and fall upon us, college students across the country are settling into life on campus. From bright-eyed, bushy-tailed freshmen to seasoned seniors, young adults in college are enjoying a newfound sense of independence. But with that freedom comes new responsibilities, including learning to navigate new and uncertain financial territory.
As a wealth management advisor, I witness first-hand the trials and tribulations that arise due to a lack of financial acumen among many college students and young adults. I also see the benefits of financial education and planning on a student’s collegiate and post-grad experience.
Parents and guardians play a pivotal role in educating college students on sound spending and saving habits, but striking the right balance between being overly involved and too hands off is key. Below are a few tips for ensuring young adults are set up for financial success in college and beyond:
- COMMUNICATION IS CRITICAL
Unfortunately, many students don’t learn the basics of personal finance – including how to open a bank account, pay taxes, build credit, and create a budget – in the classroom. Have regular and candid conversations with your college student about the steps they should be taking to build a strong financial foundation and hold quarterly touch-points to review finances and prevent minor missteps from snowballing into major crises. Finally, discuss the pitfalls of poor financial habits with your child – a keen understanding of the repercussions of poor money management will help discourage unsustainable spending and prevent burdensome debt down the line.
- BUILD A BULLETPROOF BUDGET
Mastering money management skills is a major stepping stone on the way to adulthood, and it starts with building out a sustainable budget plan. Be transparent with your child about how much you will contribute to their expenses each month and help them clearly assess and account for their monthly income and expenses. Be sure to factor in bars, food, transportation and other miscellaneous expenses – not building these common charges into monthly spending is where students often miscalculate their financial pipeline and end up in the red. Finally, control spending by opting for a debit card over a credit card, which gives users access to only the funds in their account.
- COLLABORATE ON CREDIT
Parents and students work together to establish a healthy credit record that empowers kids to act independently at college and aids them post college.
Using a credit card for certain fixed or recurring expenses – including phone, cable and internet, insurance and transportation charges – is a great way for students to manage spending and build history. When selecting a card, choosing wisely is key - Student cards generally have lower, more manageable interest rates that help manage costs.
Frank Kocur, a Littleton father of three adult children, shared with me how assisting his children with establishing their credit history while in high school and college enabled them to secure housing, utilities and telecom services.“Credit is key – unless parents want to continue supporting their adult children as guarantor on leases and other credit lines.”
- START SAVING EARLY
While college is generally characterized as a time of spending, it’s important to instill savings as part of a student’s financial habits early. With many students increasingly burdened by loans after graduation, saving for the future should be included in their budget to safeguard their post-collegiate transition. Parents should encourage part-time jobs during the school year, if possible, and funds from the school year and summer months should support a savings plan, like a Roth IRA or a monthly savings allotment into a separate savings account.
Despite their newfound sense of freedom and independence, young adults still often rely on the guidance and support of their parents and guardians to safely maneuver the unknown. And arguably the most useful virtue parents can pass on to their children is financial prudence. Indeed, sound money management is the foundation of a secure and successful adult life.
If you’re wondering where to start or what to consider, consult a financial advisor for help – having unbiased third-party guidance based on experience and expertise can be invaluable in helping you and your child succeed financially.
Scott Sparks is the founder and CEO of Sparks Financial and Northwestern Mutual Wealth Management Advisor. He has been challenging clients to plan for financial security for over 25 years. Early in his career he established himself as a leader in both his firm and the industry by cultivating relationships based upon integrity, knowledge and commitment. Over the years he has developed an elite team of individuals with diverse backgrounds and a wide array of skills and talents, all with the goal of delivering the best possible service.