Parents preparing to send their high school graduates away from home for the first time should remember to pack some financial advice in those college-bound bags, boxes and suitcases.
“Many college campuses will have credit card tables on display at orientation offering giveaways and easy credit,” said Dave Jones, president, Association of Independent Consumer Credit Counseling Agencies. “That ‘easy’ credit often becomes ‘uneasy’ debt. Make sure you have a talk about obtaining and using credit with your student before they go.”
AICCCA offers five questions to discuss before moving day: Who is responsible?
Agree beforehand that students are going to take full responsibility for their finances at college. This means they will need to make their money last by keeping track of their spending, balancing their checking accounts and paying their bills when due.
How much money are we spending?
It is important for your student to know all the costs of college and from where the money to pay those costs comes. This may include scholarships, loans and money from the family. For most families, some combination of these will pay for tuition, books and room and board. Other income such as a part-time job or spending allowance will determine the amount that is available to spend on the remaining expense items in the plan. Students should come away from this session with a good idea of how much they will have available to spend each month.
Who is paying for what?
Once you have determined the amount available, sit down with your teen and create a
spending plan. Write down all college expenses: tuition, books, room and board, toiletries, entertainment, gasoline, etc. Decide together on the things for which you will be paying and those for which your child will be responsible. Address wants versus needs and decide together how the “wants” will be paid for. You will also need to discuss how to handle emergency.
How about a credit card?
As mentioned, credit cards are easy to obtain for most college students. For some families,the convenience of a credit card far outweighs any disadvantages. Unlike cash, a lost or stolen redit card can be replaced and limits exist for fraud or unauthorized charges. Credit cards can also be an excellent resource in case of an unexpected car repair or emergency airfare home. However, make sure your teen knows using a credit card is not free money; it is instead a means of putting off paying for purchases until a later date. The bill will arrive and the creditor will expect to be paid. Charges add up quickly and without a spending plan a teen can end up in credit card trouble in a hurry. Credit card trouble in college can spell disaster in later years when they go to apply for a mortgage or buy a new car. It can even limit their future employment opportunities, since many employers now run credit reports on prospective employees.
What happens if I run out of money?
As with any new responsibility, some college students will end up charging more than they can afford, run out of money before the end of the month or be in debt to their
roommates. While your first reaction may be to send money, think again. Remember that you agreed that the student would be responsible for their finances at college; the financial lesson of overspending will not be learned if you automatically send money. Let your students figure out that they will have to work on the weekends or stay at home when their friends are going out to earn or save money to pay off their debts. When the solution must come from them they are much less likely to make the same mistake twice.
Founded in 1993, Association of Independent Consumer Credit Counseling Agencies (AICCCA) is a national membership organization, established to promote quality and consistent delivery of credit counseling services. AICCCA and its members are focused on improved creditor relations, efficient processes and advanced technology to best serve clients and creditors. AICCCA members are independent nonprofit agencies that advocate for debtors, counsel millions of consumers annually nationwide and provide debt management services to consumers with excessive unsecured debt. For more information or to contact an AICCCA member office call 866-703-TRUSTAICCCA (866-703-8787) or visit www.aiccca.org