As graduation time nears for college-bound high school seniors, it’s also time for those college acceptance letters to start rolling in, and time to let the planning begin.
While understandably caught up in the academic, housing and financial hoopla of planning for college, one all-important, but often overlooked part is planning for the safest, most convenient and least expensive tools to help a student handle money.
By taking a little time to understand some of the pros and cons of the various personal financial tools available to consumers, you and your future freshman can easily set up a way for her to pay for things using the tools that will both instill responsible money habits and ultimately provide the quality of life these good money-management practices can bring.
1. Online money-management and budgeting tools. With the help of online banking and money-management services like Mint, Quicken and Manilla, your student is more likely to pay her bills on time and stay within a budget than through random means. These tools make it easy to schedule automatic payments and transfer money. Although, while providing more services than simple online banking, an important caveat with money-managing sites is that you are sharing account numbers and other sensitive personal information with the service — a third party that’s not your bank. If you use a money-management service, pick one you’re likely to stick with before sharing this information.
2. Prepaid cards and traditional checking/savings accounts. As daily spending tools that will keep your freshman safely out of debt, prepaid and debit/ATM cards provide the convenience of credit cards, but without the temptation to spend money that’s not there. Debit/ATM cards tend to be included with bank-issued checking/savings accounts that are often free with a minimum balance. Their downside, compared with prepaid cards, is the likelihood of additional fees at some ATMs outside of the issuing bank. With prepaid cards, the convenience factor is high, but often so are the fees. Fortunately, there are now some very low-fee prepaid cards, so be selective.
3. Credit cards. Credit cards used by students tend to be either secured or unsecured, and issued to the student individually or as an authorized user card on a parent’s account. Any credit card will provide protection against fraudulent use and faulty products or services purchased with the card. As an ideal “first card” for a student with no income or credit record, obtaining a secured credit card simply requires a cash deposit in the amount of the credit limit and a co-signer for most students under 21. For the student with an already-good credit score, an unsecured card having a higher credit limit may also be an option. An easy solution in which the parent maintains some control over the card’s use is an authorized user card issued in the student’s name for her use, with responsibility for the charges remaining with the parent.
4. Student loans, grants and scholarships. If your student will be depending on financial aid, she will likely begin by completing the FAFSA (Free Application for Federal Student Aid), which will be required for any form of federal student aid. Students applying for private student loans, which are often necessary when federal funding has been exhausted or is otherwise unavailable, should be aware of the typically higher interest rates and fees, and fewer repayment options that accompany private student loans.
5. Credit report and score. A credit-savvy student will understand the value checking her credit reports at the three major credit bureaus — Equifax, TransUnion and Experian — at least a couple of times a year to avoid any of those unwelcome surprises, with a late payment or collection at apartment-seeking time being just one example. You can get a free credit report from each of the three bureaus every year via AnnualCreditReport.com. Another easy way to start building credit awareness is through one of the free monthly credit monitoring services, such as Credit.com’s Credit Report Card.
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