Thought setting up a college fund was all the financial prep work you needed to do? Think again. Your college student’s financial needs don’t end with the years of saving, 529 accounts, and financial aid forms. You also need to prepare for his or her daily spending needs. What if she needs quick cash in an emergency? Did university insurance not cover his prescription? Is she short on grocery money for the week? There are a million things parents worry about when sending their kids off to college, but financial stability doesn’t have to be one of them. Here are a few tips and tricks for starting your scholar’s financial future right.
Student credit cards: the $1,000 question
After the Credit CARD Act of 2009, college students’ ability to sign up for a credit card was sharply curtailed. In order to qualify for a line of credit, the student must be over 21 and have an income, or have a co-signer who meets those criteria. Part-time work usually doesn’t cut it: Orchard Bank, which has some of the most relaxed standards of any credit card issuer, requires a salary of at least $12,000. You don’t need to stay up at night worrying whether your student is racking up thousands of dollars in credit card debt without your knowledge.
That’s not to say that you shouldn’t counsel her about using a credit card (when she gets one) responsibly. Many lenders, banned from promoting credit cards college campuses, will instead market checking or savings accounts to get students in the door. Eventually, they hope, those same students will turn to them for a credit card. While there is no credit risk associated with those accounts, students may need help comparing financial products (is overdraft protection worth it? Which savings account has the highest yield?).
You can, of course, co-sign for a credit card. Your college student will be given a credit card that matches your credit score, and you will be legally responsible for his debt. Student credit cards can be as attractive as adult ones: rewards, low interest rates and even balance transfer deals abound. Some even reward good behavior, like staying under the credit limit or getting good grades. On-time payments will build your kid’s payment history, so that she won’t be hit with high fees or interest rates when it comes time to apply on her own. Co-signing the card will also give you some oversight on how it is used.
Give gift cards, not just cash
When you’re assembling the monthly care package, consider including some gift cards with those homemade brownies. Cards to supermarkets and drugstores can help your student stick to a budget. Don’t rule out sending one from their favorite restaurant, too, for when they feel like treating themselves to a night on the town. Giving gift cards is a great way of ensuring that your money is spent on actual necessities (vegetables, gym memberships, textbooks) rather than college necessities (takeout Chinese, Rock Band, and we’ll leave the rest to your imagination). It also offers a way to be able to at least pick up the essentials when cash might be running low. A word of warning: prepaid debit cards often seem like a good way to ensure financial responsibility, but they often come riddled with fees that you wouldn’t find with a gift card or regular checking account.
Try scheduled deposits instead of a one-time money dump
Though your student is quickly progressing toward to adulthood, spending wisely has a steep learning curve. The temptation to spend the semester’s cash in the first month is sometimes difficult to resist. Try depositing a few hundred dollars into the account at a time, and give them a chance to practice balancing and maintaining their cash. By providing support in smaller increments, the account will seem less like a bottomless well of cash and more like an opportunity to exercise some financial responsibility.
When your child goes off to college, many of the most important lessons will be learned outside of the classroom. If you can strike the balance with his finances, you can guide him toward independence while keeping him safe. Even though he’s no longer living under your roof, you’ll always be looking out for him.
Tim Chen is the CEO of NerdWallet, a personal finance website that helps parents and students find and use their first credit card.