College costs: Have the talk about financial literacy now
College costs: Who pays for toothpaste and textbooks? Will it be credit or debit? How to budget. Parents should have the talk about finanical literacy before they launch their student.
Two kids, two college tuitions. Add it up: One very big college bill.
That‚Äôs roughly Ms. Wong‚Äôs entire annual salary as a public high school instructor.
‚ÄúWe‚Äôve been saving since they were babies,‚ÄĚ said Ms. Wong, who added that the couple are determined to get their kids through college without relying on student loans.
That‚Äôs no easy feat at a time when college tuition is soaring and student debt loads are crushing.
Not surprisingly, the financial burden is hitting even affluent families. According to a recent Wall Street Journal report, the largest growth in student debt between 2007 and 2010 was in upper-middle-income families, those earning $94,500 to $205,000 a year.
How to ease the pain? As thousands of college students nationwide head to campus this fall, here are some Finance 101 notes:
HAVE THE TALK
¬† Sit down and talk clearly as a family about who will pay for what. What you want to avoid is a tearful phone call home that your freshman has drained the bank account or overdrafted the debit card.
In some families, Mom and Dad pay for basics (tuition, food, monthly allowance) while students cover the rest (off-campus meals, clothes, entertainment).
‚ÄúEach family needs to have those discussions, depending on their finances and what they can afford. You need to be clear,‚ÄĚ said Donna Bland, CEO of Golden 1 Credit Union in Sacramento.
This summer, Ms.Bland had her son, who will be a freshman at DePaul University in Chicago this fall, start buying his own essentials at the grocery store, just to get a feel for what things will cost once he‚Äôs on his own.
‚ÄúI want him to have a stake in it. There are so many basic things," she said, such as¬† toothpaste and¬† laundry detergent , "that a student will need to buy on their own.‚ÄĚ
For the Wongs, it‚Äôs a little dose of financial tough love.
Beyond paying for two tuitions, housing, and meal plans, ‚ÄúI have no intention of putting more money into their accounts. If they suck it dry, they‚Äôre in trouble,‚ÄĚ said Ms. Wong, coordinator of the honors humanities program at C.K. McClatchy High School in Sacramento.
The Wong siblings ‚Äď Nolan, 19, a University of California, Berkeley sophomore, and Delaney, 17, a University of California, Santa Cruz freshman ‚Äď are expected to pay for their extracurricular expenses, whether it‚Äôs joining a fraternity or buying concert tickets. They‚Äôre also buying their own textbooks.
To do that, both got summer jobs. Nolan earned $10 to $15 an hour as a dog washer for a local pet groomer; Delaney took home $8 an hour ‚ÄĒ after taxes ‚ÄĒ as a birthday party host and snack bar attendant at a children‚Äôs park.
When they land at college this fall, they‚Äôll each have about $4,000 in their bank accounts.
‚ÄúBooks are a priority; incidentals come second,‚ÄĚ said Nolan, who said his only indulgences as a freshman were off-campus burgers and baseball caps.
Last year as a freshman, Nolan paid for all his textbooks, including about $490 for his two chemistry classes. Whenever possible, he bought used books and compared prices online at Amazon.com.
This year, the molecular toxicology major is saving roughly $900 a month by living in off-campus housing with a minimal meal plan. He‚Äôs also bringing a rice cooker for making dinners with his roommates.
It‚Äôs all about one shared family goal: graduating in four years with no student debt. The Wongs are pulling together a combination of savings, work-study grants and a small amount of financial aid.
Last year, with only one child in college, the Wongs filled out the Free Application for Federal Student Aid (FAFSA) form, which determines a family‚Äôs eligibility for federal grants, loans, and work-study.
‚ÄúWe didn‚Äôt get one penny in federal financial aid,‚ÄĚ noted Ellen, whose husband is a high-school social sciences teacher.
This year, with two kids in college, the Wongs qualified for a combined $16,000, which includes a work-study campus job for Delaney, who‚Äôs majoring in environmental studies.
Altogether, the Wongs figure their out-of-pocket costs for college this year will run about $50,000.
MAKE A BUDGET
Creating a college budget doesn‚Äôt have to be a tedious, laborious process, said Joseph Audette, 29, vice president of financial literacy for San Francisco-based NerdWallet.com.
It can be as simple as ‚Äúwriting it on the back of an envelope with pen and paper,‚ÄĚ he notes, or more sophisticated, using budgeting sites like Mint.com, where you can visually track your spending.
As a freshman at MIT, Audette used an Excel spreadsheet that listed all his monthly income (scholarships, savings, Mom and Dad) and his expenses (cellphone plan, off-campus meals, weekend entertainment).
Far from being a drag, the exercise ‚Äúgave me confidence to know what I could spend, especially on weekends,‚ÄĚ said Audette. ‚ÄúKnowing when I could go out, and when it was better to stay in, actually made my life less stressful.‚ÄĚ
It also made him realize he needed to supplement his income, which including taking odd jobs as a DJ, a medical test subject and a campus administrative assistant.
Similarly, Delaney Wong has already applied for a seven-hour-a-week campus dining hall job for her work-study grant.
DEBIT OR CREDIT?
It‚Äôs one of the big debates, especially for freshmen new to money management. One side says a credit card ‚ÄĒ paid off monthly ‚ÄĒ is a great way for students to start building a healthy credit score. Others say credit cards can lead to freestyle spending, missed payments and a pileup of penalties, late fees and rocketing interest rates. Not to mention a beat-up credit history.
‚ÄúA debit card allows them to spend what they have, not what they don‚Äôt,‚ÄĚ said Golden 1‚Äôs Bland.
She advises college students to set up mobile texts or email alerts that let them know when their account balance is running low, thus avoiding overdraft fees.
As for credit cards, recent federal law aimed at protecting college students does not allow anyone under 21 to be issued a card unless they can show proof of repayment (i.e., a job) or have a parent co-sign.
‚ÄúThere‚Äôs value in having a credit card, but only for emergencies,‚ÄĚ Bland said, such as a medical emergency or a last-minute flight home.
Or as NerdWallet‚Äôs Audette put it: ‚ÄúYour first credit card should not be used for spending; it should be used for building credit history.‚ÄĚ
Which means: Use it sparingly and always pay off the monthly balance.
As any veteran parent of a college student knows, there‚Äôll be some financial hiccups. The lost laptop, the overdrawn bank account, the late tuition payment, perhaps an off-campus speeding ticket that busts a budget.
Audette recalls one of his freshman financial bloopers: buying expensive speakers ‚Äď in cash ‚Äď that turned out to be shoddy but nearly broke his first-quarter budget.
‚ÄúI learned to be very careful about ‚Äėdeals,‚Äô ‚ÄĚ he said, as well as to think twice before making impulse purchases.
‚ÄúThere are valuable lessons to be learned from mistakes and this is the time to learn them, while in high school and early in college,‚ÄĚ said Golden 1‚Äôs Bland. ‚Äú[Students] don‚Äôt have mortgages; they aren‚Äôt paying big auto loans. ‚Ä¶ It‚Äôs not Mom or Dad telling [them] how to manage [their] finances; it‚Äôs [them] learning in a controlled environment, with a limited budget.‚ÄĚ