Many college students have little or no experience handling money and find the prospect of sticking to a budget more daunting than a year of calculus because the numbers never pencil out.
It's not too late to give your student "the talk" about money.
"Parents don't want to deprive their students, but need to set the stage for open, frank communication about money," says June Walbert, a certified financial planner at USAA Financial Planning Services in San Antonio. "I encourage parents to let kids know that college wasn't so long ago for them, and they understand the challenges."
Walbert urges parents to start with the basics when drafting a budget.
Have your student sharpen a pencil and write down the monthly cost of tuition and fees, books, room and board, utilities, food, public transportation, personal car, entertainment and extra-curricular activities.
Cut the expenses as fine as possible to give your student an accurate picture of the monthly costs of attending college.
For example, transportation might include the car payment, gas, insurance, maintenance and parking. If your student doesn't have a car, include public transportation fares. Personal care could include such things as haircuts, shaving cream, razor blades, toothpaste or makeup. And don't forget clothes. Entertainment includes all of the undergraduate diversions — eating out, movies, sporting events, concerts and music downloads. Extra-curricular activities might include intramural sports, special interest clubs and school-related trips. Don't forget newspapers and magazines.
Next, determine the source of the funds needed to cover monthly expenses. Chart the amount from various sources, such as parents, scholarships, grants, student savings and on-campus work. (See "Shopping For Financial Aid.") If you're short each month, ask two basic questions: Where does the needed money come from? And, what spending cuts can be made?
It's a good idea to have your student use a portion of summer earnings for tuition and books. This underscores the cost of a four-year degree and gives the kid a stake in completing the coursework. If your student works part-time during school, discuss how the money will be split between school expenses and fun. (See "Start Saving For College Now.")
Think about the type of bank account your student will have at school. Joint accounts are a good way to monitor spending and to make sure bills are paid on time.
Walbert urges parents to think about who will pay the monthly bills. Many students will make mistakes in handling money, but you want the mistakes to be small. If your student has little or no experience handling money, it might be wise for the parents to write the rent and tuition checks. If your student handles money well, it still might be smart to deposit the tuition and rent money in your student's account a few days before it will be needed.
Credit cards can teach students financial discipline and help build a good credit rating that will become important after graduation, when a car and, later, a house become important. But play it safe: Put a low limit on the card. Talk to the bank and make sure that the credit limit isn't automatically increased if the bills are paid on time. Be certain your student understands the importance of paying on time to avoid the 20% finance charge. Talk to the bank about boosting the limit each year — perhaps starting at $500 and increasing to $1,500 or $2,000 by senior year.
A debit card is a good choice for financially disciplined students. For those who haven't quite made the connection between a purchase and a falling balance, envelopes stuffed with cash and labeled "rent," "books" and "entertainment" are a good way to break down spending.
A prepaid spending card is a safe and convenient way to handle money. Parents can track their student's spending and replenish the card online.
There are many Web sites offering tips on planning and saving for college, including A.G. Edwards & Sons, T. Rowe Price, Merrill Lynch, Goldman Sachs and Morgan Stanley. Major banks also offer solid information, including Wells Fargo, JPMorgan Chase, Bank of America and Citigroup.
It's never too late to discuss financial basics and draft a budget with your student. (See "Consolidate Student Loans Now.")
"A college education is an investment in a kid's future," Walbert says. "Parents have a right to review their investment quarterly or at the end of each semester."
Here are a few key moves to get you and your student started on the road to being fiscally fit:
- Parents should work with their student to determine how much money will be needed to cover four years of college. The College Board says about $45,000 is needed at a public university and about $110,000 for a private institution.
- If your student is still young, consider long-term plans, such as a 529 College Savings Plan and the Coverdell Educational Savings Account. Look into scholarships, grants and student loans.
- Teach your student the difference between needs and wants. Your kid needs money for books and lab fees but wants to take a ski trip. Any kid who understands this basic distinction is light years ahead of most students — and many adults.
- Your home owner's policy may cover your student's belongings at the dorm. Check to be sure, and plug any gaps as needed. Talk to the campus police about tagging your student's laptop computer — and teach your student the basics about guarding against theft.
- Some students graduate with crushing debt. Planning can avoid overreliance on loans, but don't be afraid to take on some debt. Think of it as an investment in your student's future. The key is getting the right mix of loans, grants, scholarships and cash on the barrelhead from summer jobs.
- When discussing finances with your student, remember that you're the one with experience and wisdom — share it with your student. Make it clear that your student can always ask questions and mistakes are forgiven, as long as they're honest goofs and not repeated.