Budgeting 101 for Your College-Bound Kid

When your kids head off to college, it's important to make sure they're ready to start handling their own finances. How do you get them to stick to a budget? How do you stop them from getting into credit card debt?

Pam Krueger, host and creator of the PBS show "Moneytrack," shared on "The Early Show" Tuesday how you can get your college-bound student to become wise on money-handling matters.

As she puts it, parents always send their kids to school with care packages. The tools of money and credit management you are going to give your college-bound kids is a financial care package. Kruger said it will be the most important care package they can get.

Kruger shared these tips for helping develop that financial care package for your child:

BUILDING A SIMPLE BUDGET

This is going to be the MOST important thing in their financial care package. Sit down with your college bound student before heading them off to school. By doing this early and getting it set, you are going to set you and your kids up for success. This does not have to be intimidating-KEEP IT SIMPLE!

AN IMPORTANT NOTE: Maybe you as the parent do not have a budget. Maybe you have managed to get by without balancing your checkbook. That DOES NOT MEAN your kids should. You should instill all the right lessons even before they start to build credit. If you introduce the concept of a budget now, you will be giving them a good financial infrastructure for their entire lives.

Start with categories, and be realistic. First of all, which one of you is paying the tuition? Are you as parents covering all the books or should that be a part of your children's budget? How is your freshman going to get around -- bus, subway, or used car? What about internet access? What sort of extra food budget is your child going to need for dinners and lunches off campus? And finally, be aware that like it or not, your child is going to need a social budget -- beer, movies, a night out dancing, sorority and fraternity dues all of this is going to add up. Tell your children to be HONEST about what they want. You can always say no.

In fact, honesty is one of the most important aspects of this conversation. Be honest with your kids about what you do and do not have to offer. It might not be totally comfortable telling your son or daughter, "I am sorry, I simply cannot afford to pay your fraternity dues," or "I am sorry, we do not have enough to cover parking for your car on campus." But you have to do it. Finding out what you can't afford will give you opportunity to discuss what's really necessary, and possible alternatives. Perhaps there are fraternity scholarships, or you can supplement money for public transportation if the car is too expensive.

Another part of the discussion -- Are you going to give your kids a stipend of spending money? How much? Is that a monthly or yearly stipend?

How much in savings do I have to pay for all of this? Subtract all those expenses from the money you have coming in and you can see where the funding shortfall might be. The budget is nothing more than a snapshot that's going to show you whether or not you are on track with your spending. It's just a tool that will help avoid big surprises later!

Example - add up all the sources of funds you will have to tap for next 10 months, such as graduation gift money, savings from work, contributions from mom and dad, and divide that total by ten months. Let's say it comes to $400/month, that's what you know you have to work with. This puts the student in control and most likely you both will need to decide which expenses are going to get cut.

CREDIT CARDS FOR COLLEGE?
A lot of kids go to college and get themselves into massive credit card debt. This is a pretty big deal, as it will leave your college graduate with seriously bad credit before they have even had a chance to purchase anything important like a new house or a new car. TELL YOUR KIDS TO GET READY. They are going to be bombarded with credit card offers, as those companies know that college kids are vulnerable to big spending and bad money management.

Eighty four percent of college students have credit cards. However, the average balance by senior year is about $4,100. This is how your college bound kids can get into trouble.

First of all, say yes to ONLY two credit cards. The smartest one to get is a debit card. This type of card allows you to only spend what you have. It is tied directly to your checking in that you pay for something it comes right out of checking. It's very straightforward -- you either have the funds in your checking or you don't. The riskier bet here is the credit card. Whether it's a card you have to co-sign or one they can qualify for on their own, a good suggestion is to use a student credit card with no annual fee, and a very low student interest rate with a very reasonable credit limit. DO NOT give your child the opportunity to dig themselves into a hole -- request a limit no more than $1,000 and agree that's it. Most of the major banks offer student cards that offer miles for purchases of books but don't get carried away by the perks. Focus on the money and credit management mission -- to stay within your budget, build a great credit profile for the student in your life.

FYI -- NEW RULES: STARTING FEB 2010-YOU MUST BE 21 TO HAVE A CREDIT CARD IN YOUR CHILD'S NAME ALONE.

Our advice? For the first 3 months -- use only the debit card and keep the credit card for emergencies. Your bank statement will show you each and every expense you're making. After first 3 months, you're going to see what college life is really costing and you will need to revisit your budget if you find you're spending way too much on fancy coffee drinks for example.

MONITER COLLEGE SPENDING
If your child is college bound, chances are they are going to want to have complete freedom, including in the area of money. As a parent, this is very dangerous. Observe and watch your child's spending habits while they are away at college. Monitor spending to make sure spending isn't going off the tracks. That extra $3.50 a day adds up to $1,000 over the school year! It's much better to find that out ahead of time so you can adjust. TIP: Automate all the big predictable bills, put those bills on auto-pilot to avoid late payments!

Make a deal with your child that receiving a monthly or yearly stipend from mom and dad comes with one important condition -- you have to be able to see or hear what's going on. The best way to do this is to give your son or daughter an online bank account that you can access. Make it a deal breaker -- you must give us the password and account info. for your mom and dad stipend. If you feel this is too much, make a bi-monthly meeting to go over your child's statements and budgets. It will allow you to check on things and decide on adjustments based on your meetings.

Your bank may offer free or discounted student accounts and automatic bill pay.

ONLINE RESOURCES
MINT.com -- Very popular. Just log in, and it gives you a snapshot of your current balances across different accounts. It's free, very easy and you just need user name and password.

Paypal just created an account where a parent can deposit money and students can tap into the joint account using a debit card or send/receive money online.