Sending Your First Child Off to College? 3 Financial Ground Rules to Set

Ideally, college will be a time when your child gains independence, makes new friends, learns a lot, and begins to make their own financial decisions. The latter, however, is something with the potential to go terribly wrong if you don't set your child straight. Here are some important ground rules to set before your child heads off to pursue a degree.

1. Don't use a credit card as an excuse to spend freely

You may decide to put your child on one of your credit cards before they go off to college. That way, they'll have a means of covering expenses in a pinch should they run out of funds in their bank account.

But make sure your child understands that having access to a credit card is not an excuse to spend freely -- especially if you're the one footing the bill. Instead, set a spending limit for your child to follow, and establish consequences that might ensue should your child fail to adhere to your rules. For example, you may want to tell your child that you'll revoke their access to your credit card if they charge more than what they're allowed to.

2. Don't overdraw your bank account

Your child may have bills they'll be paying on their own once they start college. If you're funding their checking account, it's important to explain that overdrawing it is a bad idea that could result in costly fees.

Even if your child is using their own money to pay bills in college, you should still explain why steering clear of overdraft fees is important. And you should encourage your child to check their bank account balance regularly to avoid problems. You may, for example, want to tell your child that if their balance is down to $0, they're better off asking you for a small loan than overdrawing their account intentionally.

3. Don't sign up for a new credit card without understanding its terms

A lot of credit card companies will try to market to college students and even lure them in with perks like giveaways. You generally need to be 18 years old to get a credit card of your own, so many college students meet that requirement.

But tempting as it may be for your child to apply for a credit card in their own name, many of the cards marketed to students come with very unfavorable borrowing terms, like high interest rates. So encourage your student to be judicious about signing up for new cards, and to read the fine print carefully before committing to one.

Sending your first child off to college can be as nerve-wracking as it is exciting. But if you take the time to set your child on the right financial path, you might manage to avoid some of the stress that comes with having your child pack their bags and leave home. Just as importantly, you'll be doing your part to help your child establish savvy habits that help them gain the independence they no doubt want.