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Keep your college kid financially sane

College holds so many spending temptations. Here's how to help Jr. stay on the straight 'n narrow.

By Jeanne Sahadi, CNN/Money Senior Writer, August 14, 2003

NEW YORK (CNN/Money) - You've got a couple of weeks before shipping your favorite college student back to campus. That means you may have a few teachable moments left to make sure your Phi Beta Kappa stays out of financial trouble.

College is rife with temptations for students to overspend. There's the marketing factor -- U.S. quads are lined with credit card providers trying to snag innocent new spenders. And there's the lifestyle factor -- someone's always going to have a cooler cell phone, MP3 player or video game system, not to mention a fun trip planned for spring break.

None of that, of course, includes the cost of late-night pizzas, phone bills or gas for the car, to say nothing of the other expenses a student might incur living off-campus or footing the educational bill if a parent hits hard times financially.

That's why it's a smart idea to help your kids keep their spending in check and avoid the ultimate bummer -- ending up where hundreds of thousands of folks under 35 find themselves: in bankruptcy court.

Make a plan. Map out with your child just what his or her expenses will be and what cash you can make available to meet those expenses, said Lewis Mandell, a financial literacy expert and professor of managerial economics at the University of Buffalo.


  • Create a budget for the semester
  • Decide who will pay the monthly bills
  • Create a bill-paying cheat sheet
  • Spell out what charges the credit card is for
  • Show how much debt costs in hours worked

If your kids have already had a year or two at college, you'll have a better sense of where they've overspent in the past. So now's a good time to explain the value of work if their desired expenses exceed their means.

Discuss with them what kind of job (and paycheck) they can get to make up the difference, and ask them to consider how that job will affect their studies and other obligations. If they discover they have to work long hours just to support their spending, that's a sign they might be better off cutting back their costs.

Create a cheat sheet. Have your children make a list of all their monthly bills, the due dates, the account numbers and the addresses to which payments ought to be sent, suggested Robert Manning, author of "Credit Card Nation."

"They've got to get on a regular cycle (of paying bills)," he said. "The fact that they write it down makes an impression."

Pack the computer, stereo and credit card. Your college kids are of age and can get a credit card -- or six -- without your permission.


  • 83% of undergrads have at least one credit card
  • 37.5% of graduating seniors have three or more cards
  • 44.7% of undergrads carry a credit card balance
  • Average balance: $3,066
  • Of undergrads carrying a balance, 10% have balances of at least $7,164
  • Average balances for undergrads with three or more cards: $4,433

Sources Nellie Mae; July 2002 report from
National Center for Education Statistics based
on 1999-2000 data.

But you can still keep an eye on their spending -- and perhaps reduce their urge to sign up for a credit card on campus -- if together you arrange to get a card on which you're a cosigner but which is in the child's name, Manning said. That way you are both responsible for the charges and you have access to their monthly statements.

Or you can make your child an authorized user on one of your credit cards. Only you will be responsible for the charges, but your child can use the card to make purchases.

One option is to get a College Parents of America Student Credit Card. It carries a fixed annual percentage rate of 9.9 percent, doesn't have an annual fee and parents can limit the credit line to as little as $500.

And you should spell out about what types of charges you'll pay for and which you won't, Mandell said. Make clear that charges you don't approve of will come out of your kids' allowance for living expenses or they'll have to make the money on their own.

If your children do opt to get their own cards, encourage them to shop for the best deal (low APR, no annual fee) and not to be swayed by the "free gifts" thrown their way.

Tout the virtues of paying in full and on time. Some college students believe that carrying debt is a good way for them to build a credit history, said Harvard law professor Elizabeth Warren who runs Harvard's Bankruptcy Project.

You should explain that showing you can handle credit responsibly is a good way to build credit history. The best way to do that with your credit card is to pay off all that you owe -- not just the minimum -- on time.


Of 800 college student surveyed in June:

  • 35.8% plan to spend $2,500 or more*
  • 53.2% plan to spend less than $750
  • 11% don't know how much they'll spend

*Primary kids whose parents are paying a large part of their tuition, room & board.
Source: June 2003 survey by America's Research Group

Show the connection between debt and work. If your kids don't get just how expensive high-interest debt can be, show them in dollars-and-cents. (Two calculators that can help: CNN/Money's debt reduction planner and's debt zapper.)

And for good measure, show them how much it will cost them in workable hours, Manning suggested. That is, convert the amount that they'll pay with interest into time worked based on their hourly wage. (If the student doesn't have a job, assume minimum wage.)

For example, paying just the minimum owed every month on a $1,000 balance at 19.9 percent interest will cost a total of $2,056 or nearly 206 hours of work, assuming the student makes $10 an hour after tax.



  • Median undergraduate debt: $16,500*
  • Average undergraduate debt: $18,900
    Class of 2002:
  • Average student loan debt of private-school graduates: $21,200
  • Average student loan debt of public-school graduates: $17,100

Source: Nellie Mae
*Half of students with loans have more

Show them the future. Manning will release a calculator this summer on that will help college kids get a realistic sense of their post-graduation budget based on the debts they're incurring (or thinking of incurring) while in school.

Using real salary and tax data from recent graduates who majored in a user's subject, the calculator asks students to plug in their expected loans and credit card debt (or to use national averages) to see just how much they'll have left over for living expenses.

The onus is on you

Your child is an adult who will be living independently for the first time. While colleges may provide them with good academic and career guidance, chances are you'll be their best -- and only -- resource for financial education, Manning said.

In his interviews with juniors and seniors in college who have big credit card balances, a constant refrain he hears is this: "If only I'd known."

That's why, he said, one of the best lessons you can impart to your kids who may be tempted to go over budget is, "The short-term pleasures will be far outweighed by the long-term sacrifices you're going to have to make."

This story ran on CNNmoney on 08/14/2003.