Making Cash King on Campus - teaching financial management - Brief Article

Kiplinger's Personal Finance Magazine, Sept, 1999 by Janet Bodnar

Don't let kids leave home without a crash course in family financial policy.

Now that you've paid the first semester's college-tuition bill, you may be tempted to breathe a sigh of relief. But brace yourself. You're about to face the ultimate college financial crisis: sending an 18-year-old away from home with a book full of blank checks and independent access to credit.

If you want to avoid a flurry of "send cash" e-mails, or that scary late-night phone call--"Help! I've fallen into credit card debt and I can't get out"--don't let your kids leave home without laying down a family financial-aid policy:

* Downplay credit cards. Kids over 18 don't need your permission to get them, but they need your advice on how to use them if they're to avoid the common student traps. Kids tend to equate credit cards with free money (in a recent survey of college students, fewer than half of those interviewed knew the interest rate on their cards). And you can't count on kids to reserve their cards for an emergency--for a student, that could be anything from a weekend ski trip to an order of pizza for the entire dorm floor on the night before midterms.

"I'd recommend that parents provide kids with a credit card to buy books and other school needs at the beginning of the year, and then get the card back," says Jerry Stebbins, assistant dean for student affairs at Washington & Jefferson College, in Washington, Pa. Stebbins, who gives money-management seminars to W&J students, knows whereof he speaks. In his own college days, he ran up a $13,000 credit card tab that took him 18 months of $700-plus payments to pay off ("I ate noodles every night and couldn't even afford a tux to be in a friend's wedding"). In Stebbins's experience, students with a card on their parents' account "seem less likely to binge-spend."

If you feel your kids are responsible enough to manage on their own, consider helping them get a credit card that's secured by a bank deposit. Young Americans Bank in Denver (303-321-2265; www.theyoungamericans.org), which caters to customers under age 22 nationwide, issues a MasterCard for an annual fee of $15 with an annual percentage rate of 15%. The initial credit limit is $100, but if kids secure the card by putting money in a savings account, the credit limit can go as high as the account balance.

* Keep cash king. Kids should know how to write checks, save their ATM receipts and balance their accounts before they leave home. (When I talk to parent groups, I often hear confessions from sheepish adults about how their own parents sent them off to college with a checkbook but no clue how to use it.)

If kids know how to manage a cash budget before they leave home, they'll be less likely to get into trouble with cash or credit when they're in college. And today's cash equivalents--such as prepaid cards, debit cards and college-based "smart" cards you can load with money to pay for on-campus expenses--can give students emergency protection without unlimited liability.

* Get a handle on incidentals. Figure on $2,000 or so for two semesters away from home, though that can vary widely. Ask your child's school for its recommendation.

If you think your student would be overwhelmed by managing, say, $1,000 for an entire semester, dole it out monthly and take care of as many expenses as you can in advance--by stocking up on shampoo, for example, or getting a flexible meal plan that pays for late-night pizza in the snack bar if your child skips dinner.

And make your kids contribute, from summer earnings or jobs during the school year. "Even if it's just five hours a week, it's money they've earned," says Stebbins.

* Anticipate surprise outlays. Who's going to pay if your child wants to join a sorority or fraternity, or take up an expensive extracurricular activity such as horseback riding? Better to wait until the second semester before either of you makes that kind of financial commitment.

* Know your child. Not every college student is a spendthrift. For every anecdote I've heard about a college grad working two jobs to pay off credit card debt, I can cite a success story about a kid who escaped debt-free. One young woman managed to live through a year of school in New York City on her summer savings, with a few hundred dollars to spare. "She's very frugal," explains her proud dad. "But then, she has frugal parents."

Reporter: Scan O'Neill

Janet Bodnar, senior editor of this magazine, is the author of Dr. Tightwad's Money-Smart Kids (Kiplinger, $15; 800-280-7165). Send questions and comments to her at 1729 H St., N.W,, Washington, DC 20006; or e-mail her at kids@kiplinger.com.