How to Get Your Kid Financially Ready for College
After the high school class of 2014 dons their graduation gowns, they'll be spending this summer gathering dorm necessities, picking classes and hunting for the cheapest textbooks.
One major point of focus should also be signing up for the right student financial accounts, specifically checking accounts and credit cards. With so many choices, it can be confusing for parents and students, but there are simple approaches to getting college-bound kids financially prepared.
Pick the Right Checking Account
When looking for a checking account, parents may be quick to sign their children up to their own banks or to a major bank close to home. However, that approach may not be the best for the college student.
Since college students may need cash for spontaneous occasions, it is important to have an in-network ATM at or near the college campus. Constant cash withdrawals at out-of-network ATMs can amount to plenty of fees.
At the 10 largest U.S. banks, the average out-of-network ATM fee is $2.45. Furthermore, the operator of the out-of-network ATM has the right to impose a surcharge, which typically ranges from $2 to $3.
Besides location convenience, parents also have to consider their ability to fund their kid's accounts. Ideally, a bank has locations near the student's campus and at home, where parents can deposit funds so they're easily accessible to the student. Parents and students should research which banks are around campus and near home to find the one with a student checking account that would allow them to stay financially connected.
For low-cost checking accounts, online banks also make great options because many of them will refund ATM fees. Ally Bank and Bank of Internet USA are examples of online banks that offer free checking accounts with unlimited ATM fee reimbursements. However, the caveat is that parents will have to transfer money into their children's account electronically, which will take longer than a cash deposit.
Sign Up for the Right Credit Card
Credit cards are less attainable by college students since the Credit CARD Act of 2009 took effect, requiring anyone under age 21 to provide proof of reliable income to qualify for a card.
If a student can qualify for a credit card on his or her own, it is crucial to evaluate spending and repayment habits to maximize any rewards and minimize interest paid.
For instance, a student who will be driving around campus may prefer to get a credit card that offers rewards on gas purchases. Or if a student doesn't expect to be able to pay off their balances every month, he or she may opt for a card that doesn't have rewards but carries a lower interest rate.
The more likely situation would involve parents adding their children as authorized users on an existing credit card account. Parents can limit how much their children can spend on their authorized cards, and when the occasion calls for it, they can raise or reduce the limits accordingly. As authorized card users, students can also start building their credit profiles, which can increase their chances of qualifying for credit cards and loans in the future.
Keep an Open Line of Communication
Do your children know what to do in the case of a financial emergency? College students may encounter dilemmas that cannot be solved with the financial means available to them.
Parents should keep an open line of communication that would allow their children to contact them in the event of financial distress, regardless of how bad the situation may be. It's important for parents to continue providing financial and emotional support, so their kids can focus on the most important aspect of college: their education.
Simon Zhen is a columnist and staff writer for MyBankTracker.com, where he covers banking, financial technology and savings rates.
