Students Without A Budget Flunk Personal Finance

Before sending the kids off to college for the first time, did you have that little talk about … you know?

Few parents regularly discuss the subject of money with their children, and most schools do little to prepare youngsters for essential financial tasks like budgeting or handling credit.

“It’s one of those taboo subjects; it’s like sex,” said Christine Cooke, vice president and manager of education services at Merrill Lynch.

Unfortunately, those unfamiliar with personal finance may run into problems not long after arriving on campus, when they’ve purchased books and supplies, opened checking accounts or furnished their dorms. Often times, the hidden costs, for things like toiletries, laundry or social activities, can be overlooked.

“The most dreaded call in the world is when parents hear, ‘Hi mom, I ran out of money. I bounced nine checks. Can you help me?”’ Cooke said.

Poor budgeting is the main culprit.

“The student needs to have a plan. That’s the basic concept,” said Judith Cohart, director of education and training for the National Foundation for Consumer Credit in Silver Spring, Md.

The foundation, which operates 1,300 counseling offices in the United States and Canada, has seen its share of college graduates deep in debt, not only from mounting student loans but accumulated credit cards bills.

The NFCC suggests students approach the subject of money management as they would tackle a term paper - first by creating a budget outline, which includes a breakdown of spending by categories, both academic and nonacademic; spending limits based on income; and goals.

Parents and students should work together to create a reasonable spending allowance, financial experts say. The fact that the college year is divided into segments, like semesters or trimesters, makes that task easier to handle.

It’s essential to establish a checking account to allow a student access to his or her funds and to pay bills conveniently.

Most accounts also come with automated teller machine cards, which provide around-the-clock availability.

Some banks in college communities actively solicit student accounts, with no minimum balance required, and offer helpful tips on writing checks and balancing an account.

Offers for credit cards also are abundant on college campuses, although students should be cautious in using them.

“Using your credit card is like writing the term paper,” the NFCC said in recent promotion geared for college students. “If you want to get a good grade, make minor purchases and pay your bills promptly. This activity will establish a good credit history.”

The NFCC suggests students always pay off their balances within three months.

Another alternative is for students to use checks or debit cards, which are accepted like a credit card but draw money from their checking accounts or their parents’ accounts. They also can obtain a secured credit card, which requires a security deposit into a interest-bearing savings account and limits purchases based on the amount deposited.

Prepaid phone cards can help keep expenses in check as well.

Cooke says parents can open accounts for students at the school bookstore to enable them to buy books and other essentials without sending home a surprise bill for nonessentials purchased elsewhere.

Among the other ways to help manage costs: live in campus housing, subscribe to a meal plan, and find on-campus work for spending money.

“They should try to work when they’re home from college,” Cooke said.

Semester breaks or holidays are also a good time for parents to sit down and evaluate how the student’s budget is working and to make any adjustments.

“They might want to set up a meeting with a financial consultant before the kids go off to school or when they’re off for a break … and let the kids sit in,” Cooke said.