How to Help Your College Student Learn to Manage Money

Talk to your college student about the costs associated with credit cards, such as interest and fees. Discuss how credit cards can help build their credit score and potentially earn valuable rewards — but only if they use them wisely by making timely payments and keeping balances low.

It's also a good idea to encourage them to use cash or debit cards for everyday purchases and reserve the credit card for larger purchases or emergencies.

3. Limit Student Loan Borrowing

With the cost of a college education trending upward over the last two decades,2 student loans have become a fact of life for many students. Yet it's not uncommon for young adults to use student loans to cover non-tuition expenses,3 including off-campus housing, spring break travel and entertainment.

When discussing student loan debt with your college student, explain why taking out more loans than necessary is a bad idea — especially since interest accrues on those loans while they're in school. A little extra borrowing here and there can add thousands of dollars in principal and interest to their loan — all of which they'll need to pay back after graduation.

Encourage them to look for ways to lower their costs, such as exploring scholarships or grants, living at home during college, or working part time while in school. Anything they can do now to reduce the amount they need to borrow will help them keep more money in their pocket when they leave school to start a career.

4. Help Them Create a Budget

Few people enjoy budgeting — even the word "budget" can conjure images of massive spreadsheets and tracking every cent. But budgeting doesn't have to be complicated. Learning how to create (and stick to) a budget in college can set your child up for sound financial habits in the future. It's a discipline that can easily become second nature. There are dozens of budgeting options; one simple option is the 50/30/20 rule. This budgeting method divides your student's income into three categories:

1. 50% for needs, such as housing, car payment, groceries, etc.

2. 30% for wants, including dining out, shopping and entertainment

3. 20% for savings (or debt repayment, if necessary)

When your college student creates a budget around these categories, they don't need a complicated spreadsheet or fancy budgeting software. They just consider these three categories as "buckets" for their monthly expenses. They can even put cash for their "wants" spending in an envelope, so once it is depleted so too is discretionary spending.

Ultimately, it's important to help your college student understand the importance of money management and the potential impact that debt and overspending can have on their future. Teaching your college students these lessons early gives them a solid foundation for making smart financial decisions.