This summer recent High School graduates are making checklists of all the things they need to get before heading off to some college or university. Mini fridge…check, bedding…check, Mom and Dad’s old couch…check. Many times, however, these new students and their parents miss the less tangible items before heading off to school. This leaves young incoming freshmen on their own to figure their own financial management tools. So before packing up the minivan take a few days and make sure you have these 5 items squared away before stocking the mini fridge.
1. Checking Account – “C’mon Mom…Checks are sooooo ‘90s!”
While typically called a checking account there are some accounts that are “checkless” that may meet a student’s needs. When I was in school, however, I rented from an 80 year old widow. I am not sure she could have handled me PayPaling the rent to her, so some check access may be nice.
What every student needs is something that is truly free with no minimum balance requirements or monthly fees. For a student checking it should have:
- No fees as long as the balance is not negative.
- Online and Mobile Phone access for free.
- ATM/Debit Card access with plenty of surcharge free ATMs near campus (or an account that refunds surcharges).
2. Savings Account – “Why do I need a savings account…I have no money to save!”
Now is the time for a student to learn good savings habits. When income is low, saving is hard, which helps students to learn to budget and manage personal finances. Having a savings account:
- Helps teach students to budget their money.
- If you move money into checking only when you need it, it helps resist the “Urge to splurge”!
3. ATM / Debit Card – “The lifeblood of a student’s finances”
These cards typically carry no liability for fraud and are much safer than using checks. Students should be careful when using these cards, however, since some places will put a hold on funds when the card is used (More on this when we get to #5.). When researching financial institutions look for accounts that:
- Have surcharge free ATMs near campus. Some accounts actually refund surcharges you pay which is even better.
- Don’t limit or charge for transactions. Students are known for high-frequency, low-dollar amount transactions. Some institutions charge per ATM transaction and should be avoided.
- Won’t allow you to overdraw your account with your ATM/Debit card. Some accounts will allow you to overdraw your account using your card, but charge fees for the courtesy. Since most students run their accounts close to zero they should opt-out for this type of service to avoid paying $32 for a latte. ($2 for the drink $30 for the overdraw fee)
4. Online and Mobile Phone access – “Mom, Nick says I need you to buy me an iPhone to take to school!”
Free online account access and bill payment is a must for any transaction account. Access ‘on-the-go’ can take many forms nowadays. When shopping for the right account look for:
- Free online access with free online bill payment. Some may limit the number of payments for free, but it is typically enough for a student.
- Free Mobile Access. This does not have to be smart phone based and can come in many forms including:
i. Automated phone banking – While an older solution it works from any cell phone even without internet access
ii. Text Message Banking – A very easy and fast way to transfer money between accounts and check balances. Any cell phone that can send and receive text messages works.
iii. iPhone and Android Apps – If the student has a smartphone, this is the best way to go. Access to bill-payment features through the app is an added bonus.
5. One (and only One) Credit Card – “Nick, there is no way I want my son/daughter to have a credit card and get themselves into debt!”
I have given this presentation dozens of times and I hear a version of that quote every time I give it. Credit Cards have become a necessary evil and I would strongly encourage parents to get their son/daughter a card while they are still under “the watchful eye” so students DON’T make the mistakes that many students make and pay the balance off every month.
In addition, there are places students won’t want to use a debit card and will need a credit card. Places like gas stations, hotels, and rental car agencies will put a hold on funds when a card is used. That ‘hold’ will restrict the student’s access to their money during that time, so using a credit card is preferred so they are ‘holding’ a portion of the credit limit and not the student’s cash.
When students get to campus there will be plenty of companies offering them a credit card, so before leaving parents should help students pick one for the right reasons (the rate and fees instead of the cool tee shirt for signing up). When shopping for a student card look for:
- A low limit! Limits in the $300 – $500 range keep most students out of trouble. Even if they splurge, the recovery time is manageable.
- No fees! There should be no fees unless they do something wrong like pay late or bounce a check.
- Online access. The ability to check the charges and pay your card online makes it easy to manage.
Category: Money Tips