NEW YORK (CNN/Money) -
If your son or daughter is making plans to go to college, the last thing you're probably worrying about is whether he or she can balance a checkbook. Yet, for many students, the combination of leaving home, managing one's own money, and making new friends is a recipe for financial mayhem.
You can't assume that your child is learning about money in her advanced math classes. According to a recent survey by the Jump$tart Coalition for Personal Financial Literacy, only 15 percent of high school seniors say they have had some sort of personal finance education in school. On average, the students surveyed by the coalition this year answered only half of all finance-related questions correctly. That's a failing grade by most standards.
"In the five years that we've been doing these surveys, the results have a gotten a little worse," said Lewis Mandell, a professor of finance at the University of Buffalo School of Management who oversees these surveys.
Even as the coalition is lobbying to make personal finance required curriculum in high schools, parents still need to make a point of talking to their kids about money matters before they take off for college, if not before then. "Parents cannot assume that their kids are learning by osmosis," said Richard Flaherty, president of College Parents of America.
If you're confused by your own finances, as many adults are, teaching your teen-ager about personal finance may seem like an impossible task. Rest assured, you don't need to get into the dirty details of balancing a portfolio or refinancing a mortgage. In fact, if you can teach your student how to stick to a budget, pay bills on time, be responsible with credit, and, yes, balance a checkbook, you've done your job.
College can be a real wake-up call for kids used to getting money on an as-needed basis. A lot of kids know about budgeting in theory, but have never really had to put it to practice. It's often not until they overdraw their bank accounts during first semester that they realize just how quickly café mochas and long-distance phone calls add up.
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You can ease the shock by helping your teen devise a budget before he or she leaves for school. "They should understand exactly how much they're going to have for a given time and know how they're going to have to use that money," said Susan Shelly, author of the "Complete Idiot's Guide to Money for Teens."
Together, add up how much money, if any, your child will receive from you each month, earning on their own and getting from other sources, such as scholarships or savings. Then outline what expenses they'll be responsible for paying for each month.
Of course, making ends meet on paper and in reality are two different things. That's why it's also a good idea for your student to keep a detailed diary of expenses for the first couple of months to make sure that the budget you've devised is realistic.
Depending on where you child is going to school, he or she may need to open a new bank account with ATMs and branches near campus. While it's certainly not as much fun as shopping for new clothes or stuff for the dorm, your child should be involved in searching for the best kind of account for the balance he or she will be keeping. In doing so, they'll have a better grasp on the costs associated with bouncing a check or using ATMs as an extension of their wallet.
Click here for more tips on ways to "Slash those banking fees."
Along with having a budget, keeping track of withdrawals and deposits to a bank account is essential for managing cash flow. Now that there is an ATM on every corner and debit cards are widely accepted, it can be even more difficult to keep tabs on how much money is in the bank. "Of all the financial complaints we hear it's that students don't balance their check register on a daily basis," said Flaherty.
A crash course in credit
You've no doubt heard the horror stories about college students racking up thousands of dollars in debt. The average credit card balance for undergraduates was $2,748 in 2000, according to Nellie Mae. You may have even seen for yourself just how prevalent credit card marketing is on college campuses. In any case, you should know that once your child turns 18 there is no stopping her from getting a credit card.
Your best defense, says Mandell, is to see that your child has a credit card or credit card equivalent before she leaves for school. "It's better to arrange for a card beforehand so you can be involved in the process," said Mandell. "They're probably going to want a card, and once you have something they want they're likely to listen to what you have to say."
If you're reluctant to have them sign up for their own card, you have a couple of options. You could give them a credit card linked to your account. In this case, you'll have complete control of their spending (at least with this card) but you'll also be denying them the experience of getting a monthly statement and seeing for themselves how charges add up. You could limit them to a bank debit card or prepaid card, which work like a credit card but only lets them spend what's in the bank. This is a good way to reinforce the habit of spending only what you can afford, but it may not be helpful if they are in a true financial emergency.
Another option is the new College Parents of America student card program. The association teamed up with card titan MBNA to give students their own card while still letting parents have some control. The card is in the student's name, and bills are their responsibility. But parents can set the credit limit and learn about what their kids are charging via the phone or Internet.
Regardless of how much or how little control you give your child, you'll want to talk about when it is and is not appropriate for them to use a credit card. "Let them know that there's a difference between being stranded and not having pizza money," said Flaherty.
It might also help to give them some actual examples of the repercussions of not paying their bill in full every month. For example, $1,000 worth of pizza and clothing charges will cost nearly $2,000 if they only make minimum payments on a card with 14 percent interest.
More over, talk about how important it is to pay their credit card bill – or any bill for that matter – on time each month. Tardy customers not only face late-payment fees of as much as $30, they can do serious damage to their credit reports, which could make it tough to get an apartment or buy a car after graduation.