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Student Money Management: Experts Share Their Tips

You managed to tell them about the birds and the bees. Then, what’s so difficult about the cards and the fees?

“We often have kids in our personal finance course who say, ‘My parents talk to me about some really sensitive stuff, but they won’t talk about money,’” says J. Michael Collins, faculty director of the UW–Madison Center for Financial Security and an expert in consumer financial decision-making.

Credit cards, bank accounts, financial emergencies, and bailouts are potential issues lurking just around the corner for new college students. To be prepared, Collins recommends that families have a serious talk about managing money well before a crisis arrives.

“I would say it’s a great discussion for the week after graduation from high school. Start planning ahead, get everything in place,” says Collins’s colleague in the School of Human Ecology, Rob McCalla. Include examples from your own life, both positive and negative — just be prepared for questions that might make you squirm. But if you haven’t already raised the issue, don’t assume you have missed your chance.

“The short answer is, it’s never too soon, and it’s also never too late,” says McCalla, faculty associate and director of the Personal Finance Program in the Department of Consumer Science and a eighteen-year financial planning professional.

So, once you sit down to begin the conversation, what do the experts recommend?

“I’m going to use the b-word — budget — but that’s a bad word to some people,” McCalla says. “But whatever it is, just think through, okay, what’s going to come in and what’s going to have to go out — kind of mapping out a spending plan.” Assess the available resources, including financial aid, college savings, parental support, income from jobs, etc., and estimate how much will be needed for tuition and fees, school supplies, books, housing, food, clothes, phone, subscriptions, entertainment, transportation, and anything else you can foresee.

Along with budgeting, set some ground rules about who pays for what and how the family will handle emergencies. “Some [students] think they’re going to get bailed out by their parents, and then they have that rude awakening when they call up and say, ‘I need another couple hundred dollars,’ and their parents finally say, ‘No, we’re not going to do that anymore,’” Collins says.

Having set some parameters, you can turn to the basic tools of personal finance. If you didn’t already tackle this when your student was in high school, this is the time to teach the ins-and-outs of balancing a checkbook. Even if your student already has a hometown account, McCalla and Collins believe there is something to be said for banking in the college town.

“I would argue that there is some value in the proximity, and the ability to feel comfortable walking in and doing a transaction, making a deposit, making a withdrawal,” Collins says. Regardless of the location, some parents establish a joint account with their son or daughter to teach them good habits while keeping tabs on mistakes or misjudgments.

With a checking account comes the ubiquitous debit card — a temptation McCalla cautions the holder to use carefully. “The biggest challenge on the debit card is you’re more likely to grab it out for little things — you know, swipe it at the dining hall, swipe it at the coffee shop, whatever, and most people are not inclined to grab a receipt.” That makes it easier to lose track of monthly spending and run off of the budget rails.

While checking and savings accounts seem like eminently prudent steps, credit cards can cause a parent more anxiety. Both experts feel they are not only a good backup for emergencies, but also an important step toward establishing a student’s creditworthiness post-college. McCalla advises setting a low limit — say, $500. And whatever their source of funds, have the student — not the parent — send in the payment, “because then there’s that connection between running up the tab and having to pay it.”

To the relief of many parents, no doubt, their sons and daughters can no longer get a credit card on their own when they turn eighteen. The federal credit reform law enacted in 2010 requires that applicants under twenty-one have a co-signer or proof of income. An alternative for younger students is to make them an authorized user of their parents’ account, which allows them to build their own credit with close adult monitoring. But keep in mind that the arrangement leaves Mom and Dad on the hook for any abuses.

No matter how the bills are being paid, the complexity of student finances multiplies when they live off campus. The relative ease of paying for a residence hall room and a meal plan may be replaced by multiple decisions about how roommates apportion costs such as rent, utilities, and groceries.

“It’s critical that students who are sharing housing have some agreement among each other, even better in writing, about how they’re going to handle payment of anything that the landlord’s requiring,” Collins says. Working students will confront the issue of balancing academics and earning. “That’s a conversation to have and say, ‘Okay, some work is good, but not to the detriment of your academic record.’ Even if they can’t calculate directly dollars and cents, there is long-run value of coming out of [college] with a higher — rather than lower — [grade point average],” McCalla says.

Even the most frugal students can make poor decisions. “Some students come in, they may be the ones who are fiscally cautious, and they take good care of their personal finances. But if they have a roommate or a friend who’s in trouble, and they try to help out, they sort of get taken down along with it,” Collins says. “The peer stuff is a real wild card for students to pay attention to.”

As time goes on and financial lessons are learned, McCalla calls on parents to gradually do more guiding and less controlling.

“Parents need to be involved, even if the involvement is letting go,” he says. “It’s part of your task to hand over responsibility for the finances to the student, and for some parents peeling the fingers off gets really tough.”

Speaking of Finances
Some other financial resources for you to consider as you plan: