Start college off on the right financial foot

This time of year, many parents are proudly posting photographs of their children heading off to college for the very first time. Those parents would be even more proud if they sent their children off to college knowing a thing or two about money.

But what do those bounding off to college need to know about finances? Here’s what experts had to say:

Talk money

For college-bound students, this time of year is one of many major adjustments and “firsts,” especially when it comes to their finances, says Hugh Norton, head of U.S. financial education for Visa.  “For many teenaged students, going away to college will mark the first time they handle their own budget,” he says. “It’s important that parents address the issue of money management as they prepare students for school.”

Once parents know what the fixed costs are for college — tuition, room and board, student loans — then they can help their child set a budget for non-fixed expenses, including books and personal expenses such as school supplies, toiletries and entertainment, says Norton.

“Students should understand that even if they are receiving a fixed amount of financial aid and especially if they are receiving loans, those funds should be used toward education-related expenses. The better students manage their expenses while in school, the less they will need to pay back later,” he says.

Additionally, Norton says this budget may need to be adjusted as the school year goes on, especially as students start to become more involved in college life and all that it offers.

 “For example, if a student plays sports, joins different clubs, or becomes a member of a sorority or fraternity, they may need to adjust their budget to account for these additional costs,” he says.

 Of note, Visa has a free, online education resource called Practical Money Skills http://www.practicalmoneyskills.com/, which has a section dedicated to those bound for college.

Open a free checking account

 "Many colleges and universities are affiliated with credit unions,” says Greg McBride, the chief financial analyst with Bankrate.com. “So, this is a great opportunity for incoming or returning students to open a free checking account.”

McBride also recommends opening a savings account and linking it to the checking account to prevent costly overdrafts.

"The parents may choose to seed the checking and/or savings accounts with some money to get their child started, particularly if the student isn't working right away and to avoid being 'Bank of Mom and Dad' all semester," he says.

In addition, McBride says checking accounts typically come with the option of a debit card, which gives students the ability to pay with plastic without worries of incurring more debt. “Be sure not to opt in to overdraft protection,” he said. “If the account balance is running low, you don't want your child incurring a $35 overdraft to buy a cup of coffee or a late-night snack."

Be wise about credit

Understanding credit and building a strong credit history are key pieces in a solid foundation for financial success, says Norton. “This becomes especially true once students leave school for the real world,” he says. “Almost every major financial decision, from renting an apartment to buying a home or car, cannot be done without building and maintaining a good credit history. The first step to helping any young person build credit is to first help them understand the basics of credit.”

While credit cards provide security and convenience, cardholders may find themselves facing unwanted consequences like debt, a poor credit score or hidden fees if they aren’t managed properly, says Norton.

Add child as authorized credit card user

For his part, McBride says parents can add their college-age child as an authorized user on their credit card. “This is a way to monitor their spending and make sure they're paying you for what they spend," he says.

McBride says students won't qualify for a credit card on their own without a steady and verifiable income. “Students under age 21 would need a parent as a cosigner, but it is better to add them as an authorized user on the parent's card so they don't get in over their heads on the first credit card," he says.

Another option is a secured credit card. A secured card requires a cash collateral deposit that becomes the credit line for that account, according to Bankrate.com. For example, if you put $500 in the account, you can charge up to $500.

“I like secured cards as a way to establish, or re-establish credit,” says McBride. “Terms may be more favorable on a student credit card though, provided the student has verifiable income. The campus credit union a great place to look. But either could be a good start. Just stay away from any of which charge an annual fee.”

Check your credit report

"Students should get in the habit of checking their credit reports regularly, especially if taking out student loans,” says McBride. “This is a great way to monitor against identity theft but also a regular reminder of the accumulating student debt load."

Of note, the Fair Credit Reporting Act requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months, according to the Federal Trade Commission (FTC).

You can get your free credit report at www.annualcreditreport.com. Your credit report includes information on where you live, how you pay your bills, and whether you’ve been sued or have filed for bankruptcy, according to the FTC https://www.consumer.ftc.gov/articles/0155-free-credit-reports.

Check your credit score too

Your credit reports do not, however, tell you your credit score. A credit score is an algorithm that measures your credit risk based on the information in your credit report at one point in time, according to Bankrate.com.

“Consumers should always want to know their credit score as it could impact the likelihood of getting approved for a loan and the interest rate one will get on new financial products,” says Norton. “However, understanding the factors that influence one’s credit score is sometimes even more important than knowing the score itself.”

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According to Norton, there are five key factors that influence a credit score: payment history; amounts owed; length of history; new credit; and credit mix.

 “One’s payment history is the most heavily weighted factor as a history of on-time payments can help credit, while late payments, collection accounts, bankruptcies or other negative payment-related items could hurt it,” Norton says. “Additionally, amounts owed — the amount you owe vs. your available credit — is another important factor.”

 The credit-building process can be slow and challenging and when to tackle that challenge can vary from student to student and family to family. No matter when you decide is the right time for you, it is one of the most impactful elements of your child’s financial future.

♦WAYS STUDENTS CAN BE BUDGET SAVVY WHILE AWAY AT SCHOOL♦

Take advantage of student discounts: From the bookstore to restaurants to on campus sporting events and concerts, students can take advantage of dozens of student discounts that are validated with an official student ID or .edu email address.

Save on textbooks: Look for alternatives to buying new textbooks, such as renting textbooks, buying used books, purchasing or renting e-textbooks or using the library's reference copies.

Seek Employment: There are often a number of flexible, on-campus jobs for which students can qualify if they have a work-study grant as part of their financial aid package. Additionally, most college towns have restaurants and coffee shops that hire college students during the school year.

Mobilize your savings: For students thinking about saving for that spring break trip to Florida or the Caribbean, there are mobile apps that will calculate how much money one can afford to save at a given moment – whether that's $20 or 10 cents – and will save it for them. Students should set up an automatic weekly or monthly transfer to their savings account through their bank. Chances are if they don’t see the money, they won’t spend it or miss it.

Source: Hugh Norton, head of U.S. financial education for Visa

Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal, TheStreet and MarketWatch. Got questions about money? Email Bob at rpowell@allthingsretirement.com.