July 31, 2014 at 10:00 AM ET
My son is 18 and headed off to the University of Colorado in a few weeks. I just sat down with him to have a talk about money. Among other things, I showed him my credit report online. His eyes widened. "They know all of that about you?"
They don't teach this stuff in high school.
Of all the worries you have as you watch your child pack, financial literacy may not be the one making you sweat. But you may be surprised: The average American kid is probably more savvy about things like alcohol abuse than they are about debt, credit cards, taxes and fraud prevention.
As a wealth adviser, a tax attorney and a parent, I realized we all could benefit from a good list of talking points to use as a framework for the money talk with our college-bound kids. Here's mine:
Credit: Yes, credit-card companies still set up those tables on college campuses to entice students to apply.
Establishing credit is a great thing to do at this age, but it means your son or daughter has the ability to destroy their credit in the process. Show them your credit report, and how their behavior with their credit cards will follow them forever.
Talk to them about minimum payments, and how quickly that can snowball.
Credit-card companies will often make it sound like you get something for free by signing up. Kids can fall for this. Show them where the annual percentage rate (APR) is buried in the fine print in those credit card offers that come in the mail.
Banking: If you are providing funds to your kids while they are at school, I recommend setting up a bank account for them at the same bank where you have your own money. It will make transfers easier, and you can set up overdraft protection. Tell them how overdraft protection is not to be seen as a slush fund, but rather a safety net. It's so that they don't go to buy a $5 sandwich at the campus deli, and get hit with a $30 overdraft fee.
In our family, we require that we can monitor that account, as we are providing the funds. There is a balance here with privacy, but at this stage, I want to be able to provide independence, but not cut the cord completely.
Talk to your kids about automatic payments. If you allow a vendor to take money directly from your account, you lose the position of strength if you want to dispute a charge. You are also more open to fraud.
I like debit cards for this life stage — when you are out, you are out. I've told my son to think of credit cards for emergencies only.
Fraud protection: Kids need to know that they should never be required to give out their Social Security number. Also, show them how to check their credit report for identity theft.
Tell your kids that when checking their bank balances or credit-card account, they need to do that someplace private, on their own device.
Getting a job: You should discuss expectations as to whether he or she has to have a job. In our family, our feeling is that if you can avoid having to work in your first academic year, that's helpful. If they want to go on a ski trip during the year, that has to come out of their own money, so summer jobs are a must.
After the first year, as long as our kid's grades are in hand, we'd suggest he get a part-time job that works with his academic schedule. It's important for kids this age to earn their own money, and save their own money. I would recommend that they stay away from the late-night jobs, such as in restaurants and bars, as it makes it very difficult to attend 9 a.m. classes. Their most important job right now is to succeed in their academic career.
Budgeting: Sit with your kid with a pen and paper and model for them how to create a budget. What will the family pay for, and what do they have to pay for with their own money?
College debt: Given the cost of higher education, it's critical for kids to understand the magnitude of the expense and how they will get a return on this investment. It's even more critical for kids who are taking on a large amount of college debt. Taking on debt in excess of $150,000 to $200,000 can be a burden that can only be repaid in the highest paying sectors.
Along these lines, kids may not realize how the school itself is the beginning of a career network. Their professors can put them in touch with interviews or a source for referrals. The other kids in the school can become part of the network that helps them find their dream job. The social aspect can be just as valuable as grades in terms of getting the most out of the money spent for tuition.
Four years: Kids need to be aware that many schools are not set up to get you out on time. Students need to aggressively pursue their own path. One friend of mine tells her kids that after four years, they are on the "yo-yo plan" (meaning "you're on your own").
Whatever the expectation is in your family, make it clear from the start. The money talk shouldn't take too long, but it can give your kid solid footing as they take that step out on their own.
Melissa Montgomery-Fitzsimmons is a tax attorney and the director of wealth planning at First Western Trust, a Colorado-based multistate private bank and trust.