Insights

July 15, 2024

The Art of Parenting: Preparing Your College-Bound Student

In Family Needs, Wealth Strategy

Heather Kessler
Contributions from: Heather Kessler, CFP®

Preparing to send your child off to college marks a significant milestone not just for them, but for your entire family. It’s a time filled with excitement, anticipation, and perhaps a touch of apprehension about what lies ahead. Many parents who send their first kid off to college are surprised to discover the various financial aspects that come with preparing their college-bound student. We sat down with a few of our Wealth Managers to find out what advice they would share, not only as financial advisors, but as parents of college students as well.

Here are some tips to help you send your kid off to college with confidence:

Budgeting

One of the most crucial lessons to impart before your child heads off to college is the importance of budgeting. Regardless of whether or not you have a 529 Plan or trust set aside to pay for college expenses, it’s important to discuss budgeting with your child.

Wealth Manager, Larissa Vidal, shared her thoughts on why having a discussion with your child about available resources and responsibilities for expenses is crucial. “As a parent of a rising senior, I have regular check-ins with my son about the colleges he’s considering. We discuss associated costs with enrolling at each college and how they align with funds in his 529 plan.”

Team Lead and Wealth Manager, Rachel McCracken, shared that she covered her daughter’s tuition, room and board, but set the expectation that her daughter was responsible for covering her own discretionary spending. By contributing 6 months’ worth of living expenses to her daughter’s bank account, she’s able to help her earn interest and teach her the discipline of not spending it all at once.

Initiating a budgeting exercise for your college-bound student doesn’t have to be complicated. We recommend starting with “The 50/30/20 Budget” method:

  • 50% to necessities
  • 30% to wants
  • 20% to savings

The ratios in this budgeting method can easily be modified to suit your child’s situation. Start by looking at monthly expenses with your child before they head to college. Expenses like their cell phone, car insurance, groceries, etc., so they understand the cost of reoccurring essential expenses. Even if you intend to support them while in school, it is good to set parameters for their monthly spending allowance ahead of time.

Wealth Manager, Duane Duim, recommends setting clear expectations around budgeting while they are away at college and sticking to it. “If you’re constantly bailing your kids out, you’re potentially creating lifelong, unhealthy family relationships with money.”  Brittany Gabelein, Wealth Manager, agreed by stating “you can say a lot to your kids about how hard it is [to stick with a budget or save], but they don’t know how hard it is until they are in it.”

These small budgeting steps are great ways to help your child develop smart money habits.

Establishing Credit

Encouraging responsible credit habits early is crucial for college-bound students.  Before heading off to school, consider opening a credit card with a set borrowing limit. Teach them how to monitor spending and emphasize the importance of paying off the balance in full each month, especially since the interest rates are likely much higher for young adults without any credit history.

There are various factors that affect your credit score, but the two largest are payment history and amount owed[1]. By providing your young adult with a credit card before they go to college, they can establish four years of credit history. The other factor is the amount owed – taking into account credit utilization. Rachel emphasizes that parents should caution their child against paying only the minimum on their credit card, as it can harm their credit scores. It’s crucial to stress the importance of borrowing only what can be comfortably repaid.

Estate Planning, Medical, and Insurance

Preparing for unforeseen circumstances is equally as important.

Josh Harris, Managing Director of Corporate Development, advises parents to have essential estate documents in place such as Medical Powers of Attorney. This legal preparation ensures that critical decisions can be made on behalf of your child should the need arise, especially in medical emergencies where parental authority due to HIPAA may no longer apply.

Before his kids left for college, Wealth Manager, Vince Lee, says they developed an emergency plan for situations like illnesses including identifying nearby in-network hospitals and clinics.

Associate Wealth Manager, Eric Schuehle, advises parents to contact their property and casualty insurance agent before their child leaves for school. It’s important to clarify whether your homeowners’ policy coverage will extend to your child while away at school or if a renter’s policy is necessary.

Other Practical Preparations

There are several practical preparations our Coldstream team suggested as well:

  • Set up Uber or Lyft accounts for transportation.
  • Make sure your college-bound student knows basic skills like doing laundry and cooking.
  • Prepare them for sharing a small living space.

Elizabeth Anderson, a Wealth Strategy Analyst, shares that her mom put five kids through college and made each a “life binder” to take to school filled with copies of their passports, immunization records, ID cards, bank information, etc. “I still have mine!” she excitedly shared.

Insights from a Student to College-Bound Students

Jenson Hart, a rising Junior at Santa Clara University and summer intern at Coldstream, shares that there are two things to think about when setting yourself up for success in college. Neither has to do with money.

The first happens before you ever step foot on campus. “Spend time with mom and dad the summer before going to college and make memories with your ‘annoying’ siblings. Enjoy the fact your mom or dad may be sitting at the table with you in front of a homemade meal – this may be the last time you are home for more than 2-3 months at a time.”

The second takes place once you are in college; the first month is essential. “Everyone is looking for friends…join clubs, intramural teams; try your hardest to get out of your comfort zone and meet as many people as you can.”

Parental Transition

Preparing for your child to go to college isn’t just for the student. As his youngest daughter graduates college this summer, Duane shares, “I had the misconception that most of my parenting responsibilities were done once they headed off to school.” He advises maintaining a supportive presence and being available to guide your child but to “let them make mistakes, overcome challenges, find success, and create their own path.”

Conclusion

Sending your child off to college is a profound experience that marks the beginning of their independent adult life. At Coldstream, we understand the importance of planning for this transition comprehensively. From incorporating college savings into your long-term plan, establishing good budgeting and savings practices, to partnering with your estate attorneys or insurance providers, we’re here to help make this transition a smooth success.

[1] https://www.investopedia.com/articles/pf/10/credit-score-factors.asp

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