Top 10 Money Matters for College Freshmen

Before you send your child off to school next month, take some time to talk about personal finance skills. If you think your words won’t hold enough weight – or you need some guidance yourself – consider bringing in an expert such as a Certified Financial Planner™ professional.

It’s never too early to deliver the message that how a child manages his money in college will set the stage for how well he manages it in adulthood. A planner can help a child focus on spending and debt issues in college, but it also makes sense to discuss how your student will save for a home and a car. That might force some smart spending, saving and investing decisions while he’s still in school.

Following are 10 money matters for college freshmen, compiled by the Financial Planning Association.

1. Focus on credit: It’s one thing for teenagers to use their parents’ credit card while they’re still living at home. It’s quite another when they get their first taste of freedom hundreds of miles away, often without the parents’ knowledge. Parents should opt to co-sign the student’s credit card but keep it in the student’s name. That way parents will know when financial missteps occur, which will be a strong incentive for the student to keep his credit rating clean for the next four years. Most important: Parents should do whatever it takes to make sure the child doesn’t sign up for any credit cards on campus where they’ll be bombarded with offers.

2. Bank smart: Students need to get some familiarity with the banking system before they head to college. Kids generally should set up a checking account on campus, but talk to them about debit options and fees, particularly for overdrafts, which are sky-high at many banks now.  Also ask your child to ask the bank about direct-deposit options if you’re planning to deposit money for their tuition or agreed-upon spending needs.

3 .Work with them to set up their first emergency fund: A young person should get used to the idea of savings and reserves for unforeseen events, such as emergency trips home or related expenses. Make it clear that late-night pizza is not an emergency.

4. Put the student in charge of maintaining her financial aid: Each year, the FAFSA (Free Application for Federal Financial Aid) is due in June. State applications are due earlier. While parents need to run the financial aid process, students need to be equally aware of how their education is paid. Everyone should file the form whether or not you think your child may be eligible, and your child should be searching for scholarships at all times. By the way, legitimate scholarships never charge fees and are typically open to all applicants for consideration.  It might also make sense to take your child to your tax preparer to make sure you’re taking advantage of any income tax opportunities.

5. Help them budget: If they’re leaving for college with a new computer, consider giving them personal finance software to track their everyday expenses and make sure the computer has a security password. (Keeping track of spending by calculator is fine, too.) Work together to determine necessary realities about everyday expenses, tuition and financial aid. Then tell your child that when he or she comes home at Thanksgiving, you will sit down again to review those figures and make reasonable adjustments. You need to trust your children, but you might want to do this for as long as it takes them to develop solid and consistent money habits.

6. Schedule a holiday budget and credit check: When the triumphant freshman returns home for the holidays, schedule some rest and relaxation, home cooking and the first reading ever of their fall budget figures and their first credit reports. Since credit reports can be ordered online, parents and student should sit down with each of the child’s three credit reports from Experian, TransUnion and Equifax and review them for activity and errors. Since everyone is entitled to one free report from each of the agencies each year, go to for theirs.

7. Help them open their first IRA: If your 18-year-old child is earning wages by working part-time at school, at home during breaks or for your own company, have them open a Roth IRA in a growth fund. Make sure they understand this is essential to their future savings so they don’t cash it in. Ask your planner about this.

8. Discuss identity theft: Personal financial data left on laptop computers, cell phones and other electronic devices can be readily stolen on campus or in a dorm or roommate environment. Tell your kid to keep all paper records in a safe place and introduce passwords to keep all their digital information safe.

9. Get them networking: Internships and jobs in their chosen field during summer breaks can give your student a head start on their career path. Encourage them to research these opportunities freshman year so they’ll be in the front of the line when it’s time to apply.

10. Handle mistakes carefully: Most kids will make money mistakes in college. If they overdraw a checking account or overdo it with their credit card, make the criticism constructive. Be firm and always come up with a corrective plan you’ll work on together.

By |2019-08-14T14:00:34-07:00July 20th, 2009|College Planning|

Grandparents Can Help Pay Grandchildren’s Education

j0309163One of the best gifts grandparents can give their grandchildren is to help pay for their college education. A 2003 survey by AIG SunAmerica Mutual Funds found that 54 percent of grandparents were already helping pay college costs or planned to do so. Yet many grandparents don’t realize the most effective ways of going about it, say financial planners.

There are multiple ways grandparents can help pay grandchildren’s education.

Outright Gifts

The AIG survey found that the vast majority gave outright gifts of cash or securities. This is certainly the easiest option. Each grandparent can annually give away, free of estate- or gift-tax liability, up to $11,000 a grandchild—$22,000 a year per grandchild if both grandparents contribute.

But this method has its drawbacks. Even $22,000 a year may not be enough money for the grandchild’s education (private colleges can easily run well over $30,000 a year, and some are around $40,000). Second, the gift could reduce the amount of available financial aid, particularly if the gift is made directly to the grandchild instead of the parents. And you’re relinquishing control of the money— the grandchild could end up using the money for a new car or exotic vacation.

Pay Tuition Directly

A major advantage here is that by paying the money directly to the college the grandchild is attending, you can contribute as much as necessary without the gift counting as part of the annual $11,000 gift exemption. You also ensure that the money is spent for college.

The major drawbacks are that the gift only applies to tuition and it may reduce financial aid.

Coverdell Education Savings Accounts

Grandparents who have earned income can directly open one of these accounts for a grandchild under the age of 18 and contribute up to $2,000 a year. If they don’t have earned income, they could gift the money to the parents to open the account. The grandparents can direct the investments as they choose, and the funds can be used for public and private elementary as well as secondary education.

There are some major drawbacks: the limited size of the annual contribution, donors whose income is too high cannot contribute and states don’t provide any income-tax deductions. Also, the contributions and earnings belong to the beneficiary, not the donor, and financial aid may be affected. Of course, like any investment, there is the risk of losing money in the account.

529 Plans

The AIG survey found that only two percent of grandparents had actually invested in a 529 plan on behalf of their grandchildren, though 529 plans can provide numerous benefits for both donors and recipients.

529 plans are state-sponsored college savings plans that invest money on behalf of participants much like mutual funds invest shareholder money. Under current law, earnings grow tax deferred from federal income tax and often state income tax, and withdrawals used for qualified education expenses will remain free of tax at least through 2010. The benefits for grandparents are numerous. They, not the grandchild, remain in control of the funds, yet the funds don’t count toward their estate for estate tax purposes.

Donors also can consolidate five year’s worth of tax-free gifting into a single year ($55,000 per person or $110,000 as a couple) as long as they don’t contribute any more money within that five-year period. That means investing a lot of money upfront to grow for the grandchild. Most 529 plans allow total investments of at least $200,000 and some allow over $250,000. And unlike Coverdells, they are free of donor income limitations.

The plans are vulnerable to performance swings, just like mutual funds, and critics warn about potential high investment fees. Nonetheless, these remain a popular option for many parents, and can be very beneficial for grandparents.

Prepaid Tuition Plans

These plans, operated by some states and now by a consortium of private colleges, allow investors to buy part or all of tomorrow’s tuition at today’s prices. Typically, an investor buys “units,” which might equal a semester, a year, or several years worth of today’s tuition, and the state or private consortium guarantees returns that will match the inflation rate for that system’s college costs. The poor market returns in recent years and the high rate of tuition increases have prompted some states to drop these plans or freeze enrollment.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Mike McCann, CFP, a local member in good standing of the FPA.


By |2019-08-14T14:00:35-07:00May 19th, 2005|College Planning|