Help Your College Freshman Become Financially Independent

Tips to Avoid Financial Mistakes from Baird's Susie Bauer and Tim Steffen

MILWAUKEE, July 14, 2014
– Many incoming college freshman will get their first taste of financial independence when school starts and they live away from home for the first time. Baird Private Wealth Management’s Susie Bauer, 529 Plan Manager, and Tim Steffen, CPA/PFS, CFP®, Director of Financial Planning, believe this is an important time for parents and students to plan ahead, work together to explore healthy (and unhealthy) financial behaviors, and potentially avoid costly mistakes. “Parents play the number one role in helping prepare students to make good choices that can affect their financial futures,” Bauer said.

A recent study, Money Matters on Campus, found that students entering college demonstrated many risky behaviors such as failing to pay bills on time, taking out multiple credit cards, maxing out a credit card, obtaining a payday loan or overdrawing a checking account. According to Steffen, “Students are bound to make mistakes. Parents need to monitor their behavior and constructively address mistakes as they happen to mitigate the damage.”

Set Expectations Early

Preparation to be financially independent can – and should – start in high school. Encourage your student to take a personal finance class and get a part-time job to gain experience. “You might consider setting the expectation early that half of your child’s earnings from a job go directly into a savings or money market account,” Steffen said. “This can provide an early lesson in saving while requiring the student to limit his/her spending.” Families who can afford it might even consider opening a Roth IRA for your student. Steffen said, “If your child works during the summer or school year, funding an IRA with a portion of the earnings can have significant long-term financial benefits for your student.”

As college approaches, parents need to be upfront about how much money they are willing to contribute toward tuition, room and board, and other living expenses. According to Bauer, “These discussions need to happen as early as possible, as they can influence a student’s college choice and potentially have an impact on college financing. You need to be clear about what expenses will be your student’s responsibility and what you are willing to pay for.”

Each family’s situation is unique, so parents must give thoughtful consideration to what they can realistically do. Some parents may pay for tuition, and room and board, but require their student to cover his/her living expenses. Other parents may contribute a flat amount and require their student to make up the difference. Still others are unable to help with college costs, placing the entire burden on the student.

“What’s most important is there should be no surprises for students,” Bauer said. “They need the complete picture of how much money they will need to contribute to their college education. In general, it is healthy for students to have some ‘skin in the game’ and pay at least a portion of the cost.”

Create a Budget Together

The summer before freshman year, sit down with your student to create a budget. This starts with a student’s sources of income, which will include money contributed by parents, money from the student’s savings, financial aid or loans, and any potential income from work. Next, the student will need to identify his/her expenses such as transportation, entertainment, books, and other incidentals. Unforeseen expenses should also be considered. For example, you might discuss how a broken computer might impact your student’s budget.

“The first year routinely costs more that anyone expects,” Bauer said. With estimates of income and expenses in hand, students can then determine how much they are able to spend during the year, as well as monthly or even biweekly. This budget worksheet for college students might be a helpful starting point; along with this checklist of items most first-year students living on campus will need.

According to Bauer, “The budgeting process is an opportunity to have a heart-to-heart discussion with your student. Ask about his/her goals and priorities. Are there some special expenses, like a spring break trip or a concert, that are important to your student? This discussion will help identify which expenses to save for and which to forego.”

“In addition to tracking their spending to make sure they stick to the budget they’ve outlined, students should also get used to monitoring any student loan debt they have,” Bauer said. “With more students assuming student loans to help cover the rising cost of college, there are more tools available to track that debt.” Bauer recommends ReadyForZero, a free website where students can link various financial accounts, and create a personalized plan for managing their student loans and other debt.

Bauer also recommends students use a repayment calculator such as this one so they have a full understanding of how long it will take them to repay college debt. “If your student has a clear picture of the impact of student loans, he/she may decide to finish a semester early or forego unnecessary expenses,” Bauer said.

Day-to-Day Money Management

Students who don’t already have one will need to set up a checking account before school starts. It is still possible to find free checking, and some banks do offer special accounts for college students. For some students, maintaining a savings or money market account, and moving just the money they need for the current month into their checking account may be a good strategy. Steffen said, “If you dole the money out a little bit at a time and keep an eye on the account, you can limit the damage from poor money management.” The savings account can also double as an emergency fund to cover an unexpected trip home or other unplanned expenses.

Credit cards can be a risky proposition for all but the most responsible students. According to Steffen, “Historically, college students have done a poor job managing credit cards. They carry a balance, fail to pay their bills on time, or move and neglect to forward the new address. Most students do more to hurt their credit history during the college years than help it.” Steffen recommends against co-signing on credit cards or naming your child an authorized user on your credit card as a student’s risky behavior can negatively impact your own credit record. For parents who want their student to have a credit card in case of an emergency, Steffen recommends getting only one card with a low credit limit.

College students are more vulnerable to identify theft, so it’s important to talk to your child about taking steps to protect his/her personal information. Remind your child never to share his/her social security number, passwords and PIN numbers, and to store private financial information securely on a password-protected and locked computer. Divulging too much personal information or being lax about privacy settings when using social networking sites will further elevate their risk. Finally, students should check their financial accounts on a regular basis, ideally online, for any unexplained expenses or activity.

Continue the Discussion

Regular financial check-ins are an important part of the process, so agree in advance with your student how that will work if they’re living away from home. Some families do this on a weekly or monthly basis. Others may choose to check in at the end of each semester. “If you are helping to fund your child’s college education, then you have every right to see how money you’re providing is being spent,” Steffen said. “It’s important to trust, but verify.”

To schedule an interview with Susie Bauer or Tim Steffen on this or related topics, contact Amy Nutter, Baird Public Relations, at (414) 765-3988 or For more tax and financial planning tips and insights, follow Tim Steffen on Twitter @TimSteffenCPA.

About Baird

Baird is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. Established in 1919, Baird has more than 3,000 associates serving the needs of individual, corporate, institutional and municipal clients. Baird has more than $125billion in client assets. Committed to being a great place to work, Baird ranked No. 9 on FORTUNE’s 100 Best Companies to Work For in 2014 – its 11th consecutive year on the list. Baird’s principal operating subsidiaries are Robert W. Baird & Co. and McAdams Wright Ragen, Inc. in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird’s investment banking and private equity operations. For more information, please visit Baird’s Web site at

For additional information, contact:

Amy Nutter, Baird Public Relations

(414) 765-3988