Money in the Bank: Help Your Child Manage Finances Responsibly

A Financial Checklist for College

Date: May 31, 2010
Contact: Paul Golden 303-224-3514, [email protected]

DENVER—The 3.3 million students projected to graduate from high school this year might feel they are ready to attend college or enter the work force. But those students’ diplomas don’t guarantee that they are prepared financially for their new ventures.

"We make a point of talking to our kids about sex, drinking and drugs to keep them safe when they’re out from under our protection," says Patricia Seaman, director of marketing and communications for NEFE. "We have to put money on that list, too. When parents take the time to discuss good financial practices, their kids are better prepared to navigate their way through budgeting, banking and credit cards."

Summer is the perfect time for parents to talk to their children about handling personal finances before they start their own lives. But the clock is ticking. Here are some tips for covering banking basics with your child before he or she leaves the nest.

Banking on your child
To begin, your child will need a bank or credit union account. If your child is moving to another city, check out whether your bank has a branch nearby. This will allow you to more easily transfer money into his or her account and, in certain cases, keep a closer eye on his or her account activity. Alternatively, your child can shop among local banks in that town, or on campus, to find the best fit for his or her situation.

Help your child open a bank account that offers checking, savings, and preferably, a debit card. Some banks provide special deals such as free debit cards, checks or ATM use to students and young adults. Once your child opens an account, make sure he or she understands how to keep track of his or her spending and knows about any related banking fees. These include minimum deposit fees, overdraft charges, teller fees and extra charges to use an ATM not owned and operated by his or her bank.

Have a Reserve
Once you’ve chosen a bank, you and your child should set up an emergency fund. Things happen. It might be an unexpected and costly car repair or replacement of a blown computer hard drive. Dipping into an emergency fund is wiser than getting a loan or liquidating investments.

How much money? Ideally, you want enough to cover a semester’s worth of living expenses. This includes rent or housing fees, textbooks, prepayment on next semester’s tuition, food and transportation costs, and cell phone bills. If that’s unrealistic, a few hundred dollars is a good start. Put the money in a separate, interest-bearing account that’s easily accessible, such as a money-market fund. But be aware of minimum balance requirements.

Graduation Cash
If your child received checks or cash to commemorate his or her high school graduation, it’s probably the largest amount of money he or she has received at one time. According to a recent online poll commissioned by NEFE and conducted by Harris Interactive in May 2010, 62 percent of those who graduated high school in the past five years and received money for graduation received up to $500 as part of their gifts. Thirty-eight percent received more than $500. That’s a significant amount of money.

Instead of letting your child spend that cash on the latest electronic or cell phone, teach him or her about responsible ways to use windfalls such as this. It will help in the future with tax refunds or pay raises.

  • Start an emergency fund
  • Pay off credit card debt
  • Fund a savings and/or checking account
  • Pay ahead on tuition, textbooks, apartment deposit or campus housing

Giving your child extra credit for school
Are you nervous about how your child will use a credit card while at college? Thanks to a new law—the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act—there’s less chance credit card companies will be bombarding your child with freebies on campus in exchange for completed card applications. But your child still will hear about various credit cards from friends who already have them and from solicitors in the community.

Fortunately for parents, the CARD Act prohibits applicants younger than 21 from obtaining their own card unless they can prove they have the financial means, such as a pay stub or bank statement with adequate funds, to pay the bills. If you want your child to begin building credit in his or her name or want him or her to have a card for emergencies, you will have to step in. And, if you co-sign your child’s card, you are jointly liable and your own credit might suffer if your child doesn’t pay the bill on time.

As a parent, you should take advantage of this teachable moment and encourage your student to use his or her credit card wisely. Tell your child how interest payments add up, introduce him or her to budgeting and let him or her know why it’s a bad idea to go into debt. You might even share a few or your own past mistakes.

Card options for students
Prepaid credit card: This card works much like a debit card. To make a purchase, your child must have sufficient funds in the account attached to the card. Otherwise, the transaction won’t go through. The card issuer won’t extend credit. And your child won’t go into debt, because he or she isn’t borrowing anything. To replenish the account, your child can deposit more cash or transfer money from another account.

Bank-secured credit card: A bank can set up a secured credit card, with the card's credit limit generally equal to the amount of money in your child’s savings account. If he or she fails to make the monthly payments, the bank taps the savings account for reimbursement.

Add your child to your account: This might be the ultimate test of trust and financial responsibility, but also it allows your child to build off your good credit. Make sure to monitor your child’s spending and make sure he or she pays the bill on time.

Graduation 2010: Cover the Basics Before Your Child Leaves the Nest
Parents provide the most influence on their children’s financial knowledge, attitude and behaviors. Our four-part graduation series provides information and topics weekly to help your start a conversation with your kids. For more information and to download NEFE’s 40 Money Management Tips Every College Student Should Know, visit: here.

Harris Interactive Survey Methodology
This survey was conducted online within the United States by Harris Interactive on behalf of NEFE from May 10-12, 2010, among 2,596 adults ages 18 and older. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables, click here.


  • Paul Golden

    Media Relations Director

    Direct: 303-224-3514
    Cell: 303-918-3620
    [email protected]