Preparing Your Child for College: A Financial Checklist

College is just around the corner, and your almost-adult children could not be more excited. Of course, you have planned for all the expected things that occur at college, but have you prepared for those unexpected things in the "Life Happens" department? Here are some bases you'll want to ensure you've covered:

Durable Power of Attorney
In the event of a serious accident or travel abroad, situations arise where you may need to intervene legally on your child's behalf or that require your child's signature. Have your children that are age 18 or older execute a power of attorney for one or both parents.

Advance Medical Directive
Most college-aged students are legally adults, so parents no longer have automatic access to their medical information. If they are in an accident or become severely ill, you may have to jump through hoops to obtain medical information about their situation. An Advance Medical Directive can prevent this problem. 

Store the document in a fire-proof safe with other valuables but keep it handy in case you do need to make use of it in an emergency. Be sure that whoever is named as agent knows about the directive and has a copy. This can be particularly important in the case of strong religious beliefs or divorced parents.

Property Insurance
Homeowners insurance policies typically cover up to 10% of covered household property value for students living in on-campus housing. If your student is taking valuable items to school such as an expensive computer, jewelry, or a musical instrument, you may need to purchase a rider that provides added protection for certain items that may be excluded or have low limits on your homeowners insurance policy.

If students are renting an off-campus apartment, check with your insurance company to see if their property is covered by your homeowners policy. You may need to purchase renters insurance to cover their belongings if they are not living in a dorm.

Spend some time explaining to students how an insurance claim is typically processed. Remind them that no matter how safe their campus feels, and how trusting they may be, locking up valuables is always smarter than leaving them out for anyone to see or take. Walk your child through an insurance-claims process--explain why your policy has a deductible and let them know the dollar value. A standard homeowners insurance policy offers very limited coverage on lost cash, typically no more than $200, so encourage them to minimize the amount of cash they carry in their wallets or stash in their rooms.

In Case of an Accident
Teach your adult children how to respond if a car accident occurs. Instruct them to use that ever-present cell phone to record the scene and any car damage. Have them take a photo of their car insurance card, front and back, so that it is always handy. Be sure they know what information to collect and provide to the other party if they are involved in an accident.

Lost Wallet
Again using their phones, have them take photos of everything they carry in their wallets (license, insurance card, school ID, etc.). In case of a lost or stolen wallet, they will have the phone numbers available to contact the companies and report the loss. Have them send a copy of these photos to you in case their phone is missing as well.

Identity Protection
Educate your student on the basics of identity theft and the importance of building a good credit history. A student with bad credit, whether self-inflicted or caused by identity theft, may have trouble with such basic services as opening a bank account, obtaining a credit card, leasing an apartment, or procuring reasonably priced auto insurance. Most employers run credit as well as criminal background checks before making hiring decisions, which could prevent your student from pursuing certain professions.

Lock up your student's original Social Security card, passport, and birth certificate at home. Encourage students to password-protect their phone and computer, and discourage them from storing personal passwords and PINs online or on their computers or phones. Warn them against accessing their banking or credit information from a public computer where login and personal information can be captured and then reused fraudulently. 

If students are a victim of identity theft, or if any institution has notified them of a security breach involving stolen or inadvertently published personal data, have them contact the credit reporting agency to place a security freeze on their account.  This will prevent the reporting company from releasing their credit report without consent. Be aware, however, that a security freeze may delay any valid loan application that your student makes.

Free Annual Credit Report
Individuals in the 18-24-year-old age bracket are some of the most common victims of identity theft, making college students a particularly easy target.  Encourage students before they leave for college to go to www.annualcreditreport.com and request reports from the three major credit reporting agencies, Experian, Equifax, and TransUnion. Sit down to review them together when they come in--make sure that any credit reflected on the report is valid and known to you, such as student loan applications or authorized user of your credit card.

Use of Credit Cards
You've probably had the budget talk, given your students an allowance for the semester, and lectured them ad nauseam about using only cash and debit cards so that they maintain control over their spending. But when they're shopping online for airline or bus tickets, ordering textbooks or other expensive items, you may want them to use a credit card over a debit card. With a credit card, your liability for fraudulent charges caps at $50 provided the instance is reported with a 30- or 60-day window. However, with a debit card, your liability only stops when the bank account is cleaned out, and then you will have to negotiate with your bank over who will take responsibility for the fraud.

Until students are old enough to qualify for a credit card by themselves, make them an authorized user on one of your accounts. You can manage their spending by watching their purchases online and worst case, canceling the card if your student is spending more than you had agreed. Do not take the opposite tack and co-sign a credit card application with your student. Once the card is issued, the liability belongs to you as well as to your student, and his or her poor payment habits can impact your credit score. Your child could keep the card account open for years, and approved credit lines will likely increase over time. Your one-time well-intentioned act of co-signing could land you in trouble for years if your child is not a responsible user of credit.

Note: This article was adapted from a recent column on MorningstarAdvisor.com. The authors are freelance contributors. The views expressed in this article may or may not reflect the views of Morningstar.