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How to help your kids manage their finances in college

For many students, the beginning of college coincides with their first attempt at actual budgeting. Here’s how to help your kids start off on the right financial footing.
Image: College students
College studentsAngel Valentin / for NBC News

Now that the college move is complete and classes are underway, it’s easy for parents to breathe a sigh of relief. Before you do, there may be one more item to check off your list: A conversation about how not to blow through a semester’s worth of spending money in the first month. For many students, college represents their first attempt at actual budgeting. Many fail, but with some help, they don’t have to make poor financial decisions.

According to the 10th anniversary T. Rowe Price Parents, Kids and Money survey which came out in March, parents have the most impact when it comes to managing real money in real life (even among those students who were taught personal finance in school.)

So whether you FaceTime, text or let your fingers do the walking (how 1983!) here are the items you’ll want to cover.

Help them set a budget … and benchmarks

If you haven’t set guidelines for what your child is expected to spend per semester for extras – beyond room and board, books and other planned costs – it’s time. Many colleges ballpark what these costs are likely to run (everything from late night pizza to Uber rides). At the University of Illinois, for example, the estimate is $1,420 per semester. But whether you’re looking at more or less depends on how many meals are included in your child’s meal plan (and whether he or she is likely to eat elsewhere), how easy it is to get around and other factors. Parents of older students are also good sources to consult when establishing a starter budget. Then, once you have your number, break it down into months, then weeks, then days. That will enable your child to more easily spend within the lines. An app like Mint from Intuit that tracks spending can also help keep them on budget.

Talk about how they’ll pay

The 2016 Majoring in Money survey from lender Sallie Mae looked at how students pay for daily expenses: 86 percent use cash, 85 percent debit cards, 77 percent mobile payment services and 56 percent have at least one credit card. Add those percentages up and you’ll see most college students are using a mix. They may not have a credit card yet (more on this in a moment) but chances are they’re using the other three. Here’s what they need to understand: Money flows a lot faster electronically and on plastic than it does if you’re holding the actual green. Why? It’s less real and therefore easier to spend. If they’re determined to never carry cash (a running argument I have with my own kids) make sure they know how to check their bank balances online or via an app so that they don’t overdraw. At roughly $35 a pop, overdrafts are expensive, and research shows people who overdraw tend to do it chronically rather than just once.

Consider helping them build credit

Since the passage of the Credit Card Accountability, Responsibility and Disclosure, or Credit CARD Act in 2009, it’s become a lot harder for college students to get credit cards in their own names. The law stipulates they have to be able to prove they have income or have a co-signer in order to get their own card (although sometimes income from a summer or part-time job is enough.) This sets up a conundrum. When your kids graduate college and attempt to buy cars or rent apartments, the lack of a solid credit history is a problem. So, what do you do? I’m not a fan of co-signing. If they don’t pay, you’re on the hook and your own credit history can take a hit as a result. Instead, consider adding your child to one of your credit cards as an authorized user. Make sure the card you’re thinking about will report to the credit bureaus on your child’s behalf (call the issuer). Some cards will even enable you to set up a separate spending limit so that your child can’t spend out of bounds.

Ask them to put a little skin in the game

Even if you are covering the cost of college for your children, asking them to contribute financially in some way is a smart idea. Kids will not ever truly understand the value of money until they’re earning it themselves. So think about which items can go on their tab – some daily expenses or books – and then help them strategize about a way to come up with the freight. They can stash their summer earnings to cover these costs or look for a part-time job during the school year. Research has shown students can work 15 hours a week without it hurting their academic performance.

Tell them this is the first conversation … but not the last

Finally, finances – like so many topics in life – aren’t one and done. As you close the door on this discussion, tell your kids you’re available to answer any questions and they should expect to hear from you regularly (once a month is about right) to make sure they’re staying on track financially. Then do it. And have a great year!

Jean Chatzky, is the TODAY financial editor and host of the podcast HerMoney with Jean Chatzky on iTunes.

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