Help Adult Children Manage Money
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 account.
- If your child is moving to another city, check 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 in order to properly save for the future. 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 not-too-easily accessible, such as a money-market fund. But be aware of minimum balance requirements.
Cover Credit Basics
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 rates impact the ultimate price he or she pays for goods and services.
- Discuss the importance of on-time payments and the negative impact on your child’s child credit score if payments are late.
- Pull out a credit card statement and demonstrate how billing cycles and interest calculations work (thanks to the CARD Act, these calculations now are shown on all monthly statements).
- Introduce him or her to budgeting.
- Let your child know why it's a bad idea to go into debt.
- Explain that it may seem like a compliment when credit card companies raise his or her credit limit, but it also can increase the dangers of overspending (under the CARD Act, if you co-sign your son or daughter’s account, you also must approve credit limit increases).
- You might even share a few of your own past mistakes.
Card Options for Students
For parents wary of co-signing a regular credit card for their child, these options provide more control.
Prepaid credit 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 and the card issuer won't extend credit. This should ensure that your child's credit score, as well as your own, will not be tarnished.
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 upon your good credit. Make sure to monitor your child’s spending and insist that he or she pays the bill on time.