September is marked by “back-to-school” excitement — a time of fresh starts and renewal, as college freshmen make their way to campus and returning students settle back into familiar routines.
Attending college is a pivotal, life-changing time for students and their parents. For students, it’s marked by growth, change and a newfound sense of independence. For parents, college means adjusting to a new relationship with their young adults and finding the balance between being actively involved and hands off.
As the role of parents evolves, they transition from omnipresent protectors to trusted advocates and advisers, helping their college kids maneuver unfamiliar new territory, including health care and money management.
Health care advocacy
In the excitement of going to college, parents and students often do not consider the real-world implications of children becoming legal adults, including how coming of age affects medical decision-making. Accidents and emergencies are an unfortunate part of life, but planning for the worst is a way to alleviate additional stress and frustration if the unexpected occurs.
Parents ought to devise a plan of action should your college student become ill, injured or incapacitated while away at school. Completing a few key documents — including Health Insurance Portability and Accountability Act Authorization, which grants you access to your child’s health status; Healthcare Power of Attorney, naming you as “medical agent,” giving you the ability to make informed medical decisions; and General Durable Power of Attorney, naming you as “agent” providing you authorization to make financial decisions on your child’s behalf — will give you oversight and allow you to act quickly in the event of medical emergencies.
It’s important to update these forms annually and ensure they are accepted by the school. For students attending out-of-state schools, it is important to have separate documents in both the student’s home state and college state.
Developing sound money management skills is a major stepping stone on the way to adulthood, so transitioning financial responsibilities to your college-bound daughter or son is vitally important. Establish a set of financial guidelines to prevent unsustainable spending and burdensome debt down the line.
To avoid a full-blown financial crisis, here are tips you and your student can adopt:
1. Establish a written budget. Even if parents are contributing to or funding their college student’s expenses, creating a workable monthly budget with spending and saving guidelines will help college students form sound financial habits. Encourage open and regular communication about financial priorities and expectations — college is an expensive experience and a student’s accountability to a budget and responsibility for their spending decisions is part of their learning experience.
Inevitably, most college students will make money mistakes; it’s important to allow them to right their course on their own instead of simply bailing them out. Having a plan for financial setbacks can help students manage mishaps down the line.
2. Assign budgeted expenses to specific payment methods. Control variable spending by exclusively using a debit card for eating out, entertainment and incidental expenses. Having access to only the funds in their account can help students stick to a budget. If your child has access to your debit card, create clear guidelines for expenses that will be covered.
3. Leverage student credit cards to build credit history. Using a credit card for certain fixed or recurring expenses — including phone, cable and internet, insurance and transportation charges — is a great way for students to manage spending and build credit. However, caution your child against using credit cards for incremental and incidental expenses that create debt and may not be paid off each month. Technology has removed the psychological pain associated with handing over cash, making spending on credit easy. As much as possible, students should avoid shopping for accessories, clothing, entertainment and books on credit cards, all of which tend to run up high balances.
When selecting a card, choosing wisely is key. With limited firsthand financial experience, young adults can easily fall victim to promotional discounts, perks and rewards that ultimately cost them in the form of higher rates and annual fees. Student cards are tailored for college students and generally have lower, more manageable interest rates. Have a candid discussion about the long-term repercussions of unsustainable credit card spending and best practices for credit.
Navigating the college transition can be a trying time for students and parents alike, but having honest and open dialogue about the challenges and opportunities facing young adults as they embark on adulthood — including navigating new financial territory — is the best way to set students up for success and avoid costly mistakes down the line.
If you’re struggling to agree on sound spending guidelines or have questions about arranging medical proceedings for your student, consult a financial adviser for help — having unbiased third-party guidance based on experience and expertise can be invaluable in helping you and your child meet financial goals.
Charlie Dunn is a Northwestern Mutual Wealth Management adviser and co-founder of Dunn Perrault & Associates. He can be reached at email@example.com.