In just a matter of weeks, many families will be sending their teenagers off to college for the very first time. Of course, there are all kinds of preparations that go along with this — everything from packing up belongings in preparation for the move to making sure that housing has been secured and class registration takes place.
Given the urgency of tasks like these, it can be easy to forget about some important financial items that should also be checked off the list. Here are 5 financial tasks that usually need to be accomplished before sending a child off to college:
- Review your plans to pay for college expenses. If you have spent the past decade (or longer) planning financially for college, the time has finally come to put your plan into action. So take some time now to formally review these plans one last time before the big day arrives.For example, maybe you have accumulated a nice balance in a 529 college savings account that will cover the bulk of college expenses. Or perhaps your child received a scholarship or grant to help pay college expenses. If so, figure out how much you’ll need to withdraw from your 529 account each semester and/or month to cover expenses above and beyond the scholarship or grant, like room and board and incidentals. Remember: Funds withdrawn from a 529 account must be used to pay for qualified education expenses. Otherwise, a 10% penalty may be assessed on the earnings portion of the withdrawal.
- Help your child create a budget. From a financial responsibility standpoint, college represents a kind of “halfway house” for young adults between living under their parents’ roof and being totally on their own. This presents a great opportunity to teach your college-bound teenager the basics of financial budgeting. Using a spreadsheet or pad and paper, list all of your child’s expenses on one side of the ledger and income (via savings account withdrawals or scholarship/grant distributions) on the other side. Most college expenses like tuition, rent, utilities and food (if on a meal plan) will be fixed, but don’t forget to include money for things like entertainment, clubs and other campus activities, and incidentals (such as toiletries).
- Open financial accounts for your child. These typically include a standard bank checking account and a basic credit card. Opening a bank account with debit card access will make it easier to transfer money to your child and for your child to access the money. Choose a local bank near your child’s campus or with campus ATMs to avoid ATM service charges. Depending on your child’s credit history, you might need to co-sign for a credit card, or your child may need to apply for a secured credit card. Obtaining a credit card even under these conditions is a good first step toward your child building a strong credit history.
- Take care of your child’s legal arrangements and documents. Once your child turns 18 years old, he or she is an adult in the eyes of the law. Reaching this milestone may necessitate completing some important legal documents, including a medical and a durable power of attorney. A medical power of attorney will help ensure that if your child is ever injured or involved in an accident, the doctors will be allowed to share information about his or her condition with you. And a durable power of attorney will enable you to make financial and legal decisions on your child’s behalf if he or she ever becomes incapacitated. Consult with your attorney for detailed guidance on these and other legal documents for your college-bound child.
- Arrange for the appropriate insurance policies for your child. For college students, these usually include health, renter’s and car insurance if your child will be driving a vehicle while in college. You might be able to leave your child on your existing health policy — if so, notify your carrier about his or her new status as a full-time college student. Some colleges offer basic student health plans that might also be worth looking into.
Many dormitories and apartments require students to purchase renter’s insurance to cover their personal belongings. As for car insurance, let your carrier know about your child’s new full-time-student status and change of address — these could affect rates, either positively or negatively. You might be able to save on car insurance if your child keeps driving to a minimum by having him or her designated as an occasional driver.
Please contact us if have more questions about these and other financial tasks to accomplish before sending your child off to college.