As a parent, you've taken every step you can think of to prepare your child for college. But there's a good chance that you've been so focused on the classroom aspects of college that you overlooked the real-world aspects.
College freshman are just getting a taste of independence and the real world. With that newfound freedom, they're bound to make a few financial mistakes – especially if they've never made or stuck to a budget. Here are five financial mistakes college kids make and how to help your child avoid them.
1. Not Setting and Sticking to a Budget
One of the biggest mistakes college kids make is not setting a realistic budget. Whether your child is working full-time or relying on your financial assistance while in college, a budget needs to be set to keep spending in check.
Consider helping your child set spending limits and create a financial management plan. There's a good chance that your family operates on a budget, so use your experience to set your child up for success during college.
2. Taking Out Quick Loans
When college kids run into trouble financially, they often run to the simplest solution: quick loans.
From payday loans to title loans and pawn shops, there are a few ways college kids can get their hands on some quick cash. While tempting, that cash comes at a high price. These loans often have soaring interest rates or put your child's property in jeopardy.
Encourage your child to talk to you about financial difficulties instead of turning to these solutions right away. Sometimes, loans are a practical option. In other cases, setting a budget and helping your child get back on track can prevent unnecessary debt accumulation.
3. Racking Up Credit Card Debt
With college comes freedom, and that freedom can sometimes get to a student's head. Many college kids make the mistake of using credit cards to fill the gaps in their budgets or to splurge on things they want.
While convenient and tempting, credit cards should only be used in emergency situations.
Most students will already walk away with tens of thousands of dollars in student loan debt. They don't need credit card debt on top of that.
On the other hand, using a credit card responsibly can help your child build good credit during these important early years of adulthood. Encourage your child to keep credit limits low, and to pay balances off every month. Paying on time, every time, is important, too.
4. Skipping Classes
Many college students forget that classes cost money. Each time they miss a class, they're throwing money away. Skipping classes also increases the chances of failing the course. Failed courses have to be retaken, which only adds to your child's college bill.
To maximize the value of each course, encourage your child not to skip classes.
5. Not Understanding the Cost of Student Loans
So many college students take out student loans without even taking the time to understand the terms and true cost of the loans.
It is crucial for students to understand how student loans work before they sign on the dotted line. Taking out a loan is a major financial undertaking, and unlike grants, they must be repaid.
Ideally, college kids should avoid borrowing more than they plan to make in their first year after graduation.