Thousands of families will see their high school graduates head off to college. Many of those students will be financially independent for the first time in their lives.
Are they prepared to make important decisions on spending, budgeting and credit card use? The Credit Union National Association and the Association of Independent Consumer Credit Counseling suggest these ways parents can help:
- Explain how credit works. College students are often deluged with on-campus credit card offers, with the added lure of free gifts. Let your students know they’ll not only take home a free T-shirt, but a credit line they may not be able to afford and may not know how to manage. Nellie Mae reports undergraduate students had an average credit card debt of $2,327 in 2002. Make sure your teen knows using a credit card is not free money, but rather a means of putting off paying for purchases until a later date. Reinforce the fact that interest paid on purchases makes the item more expensive than the original ticket price. Carrying a credit card for emergencies can be beneficial for students, but a debit card with a set balance each month may be a better option.
- Create a spending plan. Write down all college expenses, such as tuition, books, room and board, cell phone, toiletries and entertainment. Determine expenses you’ll be paying and those for which your child is responsible. Take scholarship and loan money into account.
- Come to a no-bail-out agreement. Agree beforehand that students are going to take full responsibility for their finances at college. Some 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. Your first reaction may be to send money and bail your child out of the financial hardship. Don’t do it. Students need to figure out a way to get out of debt, such as working on weekends or staying home when their friends are going out. Chances are they won’t make the same mistake twice.