How your college-bound kid should manage money on campus
The admissions and financial aid application processes suck up so much oxygen for families with kids headed to college. Once you’ve committed to a school and figured out how to pay for it, you deserve a carefree summer—right? But come fall, your kid will have to start managing his finances on a level he’s never before faced. So, before you strap the foot locker onto the station wagon (“Wait, just one bungee cord?”), find some time to go over your kid’s campus budget—for a detailed worksheet , see Chapter 9 of Make Your Kid a Money Genius (Even If You’re Not)—and his banking options.
Mortgages, auto loans, and 401(k)s are still beyond the horizon for your incoming freshman. He just needs a way to manage income (work-study income, pay from other part-time gigs, or any money you choose to send) and expenses (essentials like books, supplies, and travel, and discretionary spending like dinners out, Netflix, or admission to a campus improv comedy show). That’s why, for now, your kid has relatively simple banking requirements: free checking, a debit card, and a free network of ATMs both at home and at school.
“The checking account is the centerpiece,” said Greg McBride, chief financial analyst for Bankrate.com—for everything from direct deposit of paychecks to keeping his Venmo account flush. Your kid may need a combination of the following options:
Your kid’s first stop should be the financial institution created just for his school’s students, alumni, and faculty. More so than ordinary banks, credit unions tend to offer lower-priced services. “A lot of colleges and universities are affiliated with a credit union, some of which even have on-campus branches,” McBride said. “We found that 80% of credit unions offer free checking.” However, the benefits of credit union membership may not extend far beyond the campus border. “Credit unions may be less expensive,” said student loan expert Mark Kantrowitz of Savingforcollege.com, “but they may not have a national presence, which becomes important if you move for a job after graduation.” Which brings us to…
Regional or national banks
A major bank will most likely fulfill most of your student’s needs on campus, back home, and wherever she heads after graduation. But fees could be a bugaboo. “Most students choose a bank based on convenience, such as a bank that has many ATMs on campus,” Kantrowitz said. “They should also consider fees (e.g., no monthly fees and no minimum balance requirements) and whether the bank has a national presence.”
Don’t rule out a bank just because it doesn’t have a brick-and-mortar location near campus. Because they don’t have to pay for branches, tellers, and ATMs, online-only banks pay higher interest on savings accounts and, in some cases, checking accounts. Many of them also make up for their lack of traditional services (banking at the branch) by offering ATM fee reimbursement, free checking, and remote check deposit via phone. Check NerdWallet.com or DepositAccounts.com.
Alternative payment methods
If your kid is just paying for the occasional burrito with a monthly stipend, then Venmo may be enough. But, McBride said, “Is it just cash, or are you paying bills, do you need a place to put a paycheck?” Chances are he’ll need a true checking account. (Venmo, as well as Qapital, a savings app, and Acorns, an investing app, each offer a linked debit card. But watch out for hidden fees and a lack of key features, such as direct deposit.)
Caution, Part 1
The biggest-dollar line item in your kid’s college budget is probably financial aid (including grants, scholarships, and student loans), but that money goes straight to the bursar’s office. However, any money left over beyond the cost of attendance each quarter or semester gets kicked from the bursar to your kid as a “refund.” The obvious danger: “Students often treat this refund as free money and splurge on inessentials, which is why about half of college students run out of money in the middle of the academic year,” Kantrowitz said. “Keep in mind that the refund often consists of borrowed money.”
Caution, Part 2
There’s no more expensive way to cover college costs than with a credit card that isn’t paid off in full and on time each month. Fortunately, until your kid is 21, he can’t get plastic without proven income. You could (1) cosign for your kid’s credit card or (2) make him an “authorized user” for yours, but in both cases, you’ll be responsible for any wild spending, and your kid’s credit card learning experience will be consequence-free. Instead, wait until junior or senior year, when your kid can apply for a student credit card after ably managing his college finances for a while.