The Financial Lessons Every Parent Should Teach Their College-bound Kid

It's that time of year when parents are rushing to buy all the supplies for their college-bound child.

Getting the mini-fridge, the microwave, a new laptop, books, even on-campus meal plans is all part of the process of helping your child feel prepared and equipped to succeed in the next chapter of their life.

However, one essential item is often left off the checklist: Having a conversation about personal finance.

College is often when young adults start making financial decisions by themselves. Whether it's learning how to use a credit card, following a budget or deciding how to live on limited funds, the habits they develop during this time can have lasting financial consequences.

Before move-in day, parents should take this opportunity to teach their children how to make smart financial decisions from the start.

Start with a conversation

Before getting into budgeting, credit card use or opening new bank accounts, start with a much simpler conversation: Explaining how money works. Many college-age children understand spending money, but often don't understand how the financial choices they're making can either work for them or against them.

In life, money can be managed well, working for your benefit, or it can create obstacles and eventually start managing you.

While it's getting better, many of us weren't taught these fundamental financial skills in school or at home. For a long time, finances weren't openly discussed, which is why it's important for parents to break the cycle by having those conversations before their child leaves home.

Set up an emergency fund

One of the first lessons I encourage parents to teach is understanding that not every purchase has the same impact. For example, some of the things we buy, such as food, hygiene products, clothing and school supplies, are necessities that will eventually have to be replaced.

Other purchases have the potential to earn money or increase in value over time. These can be investments, starting a business and renting out property.

Money should also be set aside in an emergency fund, for example in a cash savings account, to help cover unexpected expenses, such as a car repairs, medical bills or a sudden job loss.

Saving these dollars and using them for emergencies only can help avoid taking on debt that could take years to pay off, or taking from your future by selling long-term investments and other valuable assets.

Use credit sensibly

College is also the first time many students take out their first credit card. While using credit responsibly can help build a positive credit history, it's important to teach them that a credit card is not an extension of their income.

They don't own this amount of money to spend — they're borrowing it to use now and will be held responsible for paying it off later. It's a loan. And loans carry interest.

When statement balances aren't paid in full each month, they start accumulating interest. This means that a $200 shopping spree could have the potential to end up costing $500-plus once that loan is paid back. This can create consequences that follow them long after graduation.

When it comes to credit card use or the impacts credit history can have on future opportunities, I like to tell families to introduce credit scores by explaining them as a lifelong financial report card.

The behaviors students fall into now — paying bills on time, keeping balances low, living within a budget and saving — can influence every milestone in their future, from buying a car to qualifying for an apartment or loan or even securing their first job.

That's why developing good financial habits from the beginning is crucial. It's much easier to build healthy habits early than to repair poor ones in the future.

Learn from mistakes

Through this process, it's also important for parents to remember that just because their student is leaving for college, it doesn't mean they have to stop being involved in their child's finances.

Continuing to provide additional guidance and support, especially during those first few months, can help reinforce healthy habits while giving students the opportunity to learn from small mistakes before they pose a risk to future financial security.

This doesn't mean controlling every purchase. The goal isn't to remove mistakes entirely. Instead, putting together a simple budget, reviewing recent purchases or setting reasonable spending limits on first-time credit card use until the child has demonstrated they can use it responsibly are all healthy ways to remain a part of your child's finances while still giving them the room to learn from their mistakes.

Build strong financial foundations

One of the most valuable financial lessons parents can teach their college-bound child is to think beyond the present.

Before they make a financial decision, encourage them to consider how it might affect their future. Whether it's taking on unnecessary debt or prioritizing saving for the future, whatever choice they make now can shape the opportunities they'll have in the future.

As your student heads off to school, use these final moments of summer as an opportunity to lay that foundation. As well as maximizing your time with them, talk to them about how money works, share mistakes you hope they avoid making and continue to reinforce the importance of making thoughtful financial decisions.

This will not only help them prepare for the next four years, but also give them the tools to build lifelong financial independence.

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• I'm an Investment Professional: These Are the Three Money Tips I'm Giving My College Grad
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.