How to Talk to Your College Kid About Money

As you prepare to send your kid off to college for the first time, there’s a whole lot of stuff that’s already on the "to do" list: Get a physical, buy school and dorm-room supplies, find shower shoes, etc. Before the big goodbye, however, it’s a good idea to check one more thing off that list: Have a chat about money. For many kids, college is the first time they’ll be living on their own … which means it’s the first time they’ll be making their own financial decisions.

To help you set them on the right track, we spoke with Neale Godfrey—a New York Times #1 best-selling author on family finance and the CEO/president of GreenStreet Commons, Inc.—and Lori Mackey, founder and CEO of Prosperity4Kids, Inc, on their suggestions for what to teach your kids about money before sending them off into the collegiate sunset.

“The biggest complaint I hear from people with kids in college is that their kids can’t budget, and they’re always calling their parents and asking for more money,” says Mackey, who has a college student, herself. Before sending your child off to school, set some clear boundaries on what you’re willing to shell out, what that money is to be used for and what the options will be if your kid runs out of it. “I monitor my daughter’s account so I can see what she’s spending money on, and I expect her to know what she has in her account at any given time,” said Mackey. “Many kids just swipe their cards and hope the transaction goes through.”

If your child will be contributing to that college education through loans, be sure you both sit down and explain exactly what that entails. “Most likely your child has never paid a bill in her life before leaving for college, and then she’s taking on massive loans for school and doesn’t understand what that means, or what paying it off will look like,” says Mackey. Before your college kid signs on the dotted line for any kind of loan, make sure he understands the concept of interest rates, payment schedules and how long it’ll take him to pay back those loans. “This is the biggest regret many students have,” says Mackey. “And no one really explains what they were getting into from the start.”

Despite what some experts might say, Godfrey does not suggest giving your kid a credit card before sending her off to school. “Credit cards become a magic piece of plastic with no accountability,” she says. If you’ve taught your kids how to budget and live within their means, they shouldn’t need one. In a last-minute pinch, provide some extra money on a debit card for emergencies, suggests Godfrey.

College living inevitably lends itself to one particularly dreaded situation: borrowing or lending money. “Kids need to be able to say ‘no’ to friends who want to borrow money,” says Godfrey. “That can really add up, and it can be uncomfortable to ask for the money back. Of course everyone gets in a pinch every now and then, and that’s OK—it’s the habitual borrowing from a friend that they want to avoid.”

Speaking of borrowing money, here's another related topic to cover. While you obviously want your child to not only be responsible for what he’s spending on in school and to budget wisely, it’s important that your kid understands he can come to you in the case of an emergency. Additionally, remind him that it’s not appropriate to hit up friends.

Despite the best intentions (and the best budgets), every now and then it’s easy to get off track. When this happens, it’s important that your kid knows how to cut spending. “Chat with your teen ahead of time about some easy ways to cut spending—like buying used textbooks instead of new—and let her come up with some ideas on her own,” says Godfrey. It’s much easier to fall back on some previously determined ideas when money’s tight, rather than trying to pull cost-saving ideas from out of thin air.

With everything else that will be going on in your child’s life, the last thing he’ll need is to lose his wallet with all of his important information and cards in it. “Make sure your kid knows his ATM and debit card PIN numbers by heart, so he doesn't have to keep them in his wallet,” suggests Godfrey. You might also suggest that your kid only travel with one form of ID and one debit or credit card, if he has them. This way, if he does lose his wallet or it’s stolen, he’ll have other backup methods of payment.