It's exciting getting a child ready for college for the first time. There are those trips to Target for extra long dorm bed sheets, the final visit to the pediatrician and the negotiations over which roommate is bringing the refrigerator.
But what about money?
Even students who live in dorms and use comprehensive meal plans need a plan for discretionary spending. And for many, college may be the first time they have to manage a budget.
That's a good challenge — for both parents and students, said Patricia Seaman, senior director of marketing and communications at the National Endowment for Financial Education.
"If you haven't spent a lot of time talking with them about money up to now, this is a great place to start," she said. Seaman added that she had her own kids create spreadsheets with anticipated expenses for books and everything else, and then they discussed who would cover what.
"A lot of students haven't gone through that budgeting process," said Elizabeth Scheiderer, a financial adviser at NCA Financial Planners. "Go through it with them. Explain that these are your fixed expenses, these are your variables."
The challenge is arriving at a workable, realistic budget with your student. Just like snowflakes, no two budgets will be exactly alike. Colleges post estimates of anticipated living expenses on their websites, but those estimates are not always accurate. And of course, your own financial situation will be a factor, along with the amount of loans your student takes out for college.
Some parents opt to just supply a student with a set amount of cash every month. Jeanne Arguelles of Rockwall, Texas, is one. Her daughter Ali is a pre-med and Spanish double major and cheerleader at Notre Dame, she said, and she is really, really busy. "Her schedule doesn't allow time for a job, so we provide her with spending money." The good news, Arguelles said, is that Ali is so busy that she doesn't have time to spend much, and she has been generally responsible with whatever spending she does.
Other parents make their children entirely responsible for their own spending money. Kathleen Fennell of Valiant, Oklahoma, said she and her husband told their daughters that they would help them go to college, but they would not pay for it. Both girls got scholarships and worked during the summer.
"They learned to live within their means," Fennell said, coming up with money-saving strategies like finding textbooks on eBay.
Many other families fall somewhere in the middle. Catherine Seeber, a principal and senior adviser at Wescott Financial Advisory Group, argued that it's a good idea to enable a child to focus on academics rather than working long hours. Too much work can affect their performance and possibly even their ability to graduate in four years, she said. But even so, "it's so important for a kid to have skin in the game."
One way to accomplish that is to give a student incentives to save money. Scheiderer suggested that parents offer to match any money a child saves. For example, if a student packs lunch for a month rather than grabbing a prepared sandwich at a campus store, parents could match the money he or she managed to not spend.
Seeber said one option is for parents over time to shift responsibility for financial decisions to their children. Freshman year is when a student is most likely to be living in a dorm and eating on the meal plan, so the only budget challenges relate to spending on "wants" like pizza and road trips.
"When they want to transition to something different, they will have to find a way," Seeber said. "If they want to go off the meal plan, they get that money and they have to figure out how to spend it. If they want to move off campus, you give them room and board money and they have to figure out how to spend it."
Meg Heisler, a student graduating from Dartmouth in early June, said her spending patterns changed over her time in college. At first, she said, she had little need to spend since there were so many free activities on campus. But as a 21-year-old senior, she started going out more in town, and also traveling more to visit friends.
Heisler said she has had times when she has run through her money faster than expected, and her parents have been understanding. "I manage my own budget, so they trust that in those situations I won't be spending on things I don't need or can live without."
These days she tries to prioritize spending on experiences rather than things, and understands, she said, that "there are always things you can cut out."
A budgeting tool can help students stay engaged with budgeting and remain on track. Seeber says mint.com is one good option.
Budgeting also requires bank accounts, and it's a good idea to help your student learn how to open the right ones. Make sure the bank has convenient ATMs so your student doesn't have to pay fees just to withdraw some cash. And if a student ID doubles as a prepaid debit card, as they do on some campuses, make sure your student is prepared for the temptation that presents.
College brings lots of "firsts," and many of them are in the budgeting department. The good news is that a student is still operating in a bubble, so any mistakes or failures will have limited impact.
"What's the worst consequence that can happen?" asked Seaman. If your child blows his or her budget, "they don't go out for pizza one night, and your kid is going to learn from that."
Seaman describes money mistakes in college as training wheels to the real world. "It's fine for them to make mistakes. They're still under your umbrella. You'd much rather have them do that in college than when they are 1,000 miles away from you in their own apartment."