How to Keep Your College Kid Out of Money Trouble
Going off to college isn't just a rite of passage for students. It's a big one for parents, especially first-timers.
How to handle this new set of challenges is the subject of Letting Go: A Parents’ Guide to Understanding the College Years (William Morrow, $16.99), just released in a revised 6th edition.
Money recently interviewed one of the book's coauthors, Karen Levin Coburn, senior consultant in residence at Washington University in St. Louis.
We asked her about some of the most common, and occasionally awkward, financial issues today's families face.
Money: You write that filling out financial aid forms is a good opportunity for a frank discussion about family finances. What should parents aim to cover?
Coburn: Many families would rather talk with their children about sex than about money. However, frank discussions about family finances can go along way in establishing mutual understanding and realistic expectations for students and parents alike. Although it falls on parents to fill out the financial aid forms, it’s a good idea for them to share the information with their child. As they look at the figures together, they can begin to discuss what the parents can afford to pay, how much debt they would be willing to assume, and how much the student might need to earn or borrow.
Q. Should parents try to initiate that discussion even earlier—say, early in high school?
A. Ideally the parents would initiate this discussion during junior year when discussions about college begin in earnest.
Q. How much do you think it's fair to ask a child to contribute toward college?
A. There is no set figure that fits all situations. But it’s helpful if parents make it clear that saving for college is a good thing. They can help their teenage children to set up their own college fund—depositing birthday and holiday checks and earnings from part-time jobs. Though the amount of money they accumulate may not go very far in paying tuition bills, the students will have begun to make an investment in their own education. Once it’s time to actually set up an expense budget for college, some parents tell students they are responsible for paying for extra meals and entertainment, or for books and supplies, or a portion of tuition.
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Q. How do you break it to your kid if certain schools are out of reach financially?
A. Parents should start out with a clear idea of what they are willing and able to pay without putting themselves into a risky financial position. Once that has been established, students should be encouraged to apply to a combination of schools—some that are high in cost but give significant aid, others that the family can afford even if significant aid is not forthcoming. Many of the private colleges and universities with the highest tuition rates also have the highest rates of financial aid. Parents should make clear right from the beginning that it’s not the sticker price that matters, but the actual cost of attending. Distance from home and travel expenses also need to be figured in as part of the equation.
Q. Is it better to give a college student a regular allowance or just pay for things as they come up?
A. It’s better to set up a budget with a regular allowance distributed either by month or semester rather than simply doling out money as things come up. That way, the student learns about budgeting and keeping track of expenses. Most schools provide guidelines about typical expenses so that parents and students can come up with a tentative budget. During Thanksgiving or semester break, parents and the student should sit down together and review the budget, discuss it, and if necessary make adjustments in spending patterns.
Q. Should you attempt to monitor your child's spending, such as reviewing bank statements, or is that too helicoptery?
A. Rather than checking students’ expenditures, it’s preferable for parents to ask students to keep track themselves and then to discuss together when reviewing the budget and making plans for the future. Students may realize that they spent way too much on pizza or that the art supplies they purchased at the beginning of the semester need to be replaced. This method provides students with a learning experience, an increasing sense of responsibility and independence, and confidence to manage their own finances.
Q. What kinds of financial trouble do you see college kids getting themselves into these days?
A. Credit card debt is a big problem for today’s college students. With easy access to multiple credit cards, too many students find themselves in trouble. It’s important for parents to teach their children about the pitfalls of abusing credit cards. Also, today’s students often use college-sponsored debit cards for everything from their meal plan to laundry and vending machines. This convenience makes it easy to lose track of spending. Some students report that they can download money onto their campus smart card from their parents’ account whenever they wish, and have no idea how much they are spending.
Q. So, a lot has changed since their parents were in college…
A. Parents of today’s students were more likely to have checking accounts than debit cards. Even if they did have charge cards, they usually just had one. They did not live in a basically cashless society, in which charges are effortlessly made with the click of a phone.
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Q. When should parents intervene, and when should they let their kids take their lumps in the hope that they'll learn something from the experience?
A. Parents should let students learn from their mistakes up to a point. It’s okay if they run out of money for movies and pizza and have to deny themselves some social activity at the end of the semester. However, parents should intervene when a student sinks into credit card debt or has large unexplained expenses. That may be a sign of drug or alcohol use or a gambling addiction.
Q. Are there particular expectations you think parents should make clear at the outset, such as graduating in four years, or who pays for grad school?
A. I think it is a good idea for parents to share their expectations right from the beginning. These may include graduation within four years, the option of one academic experience abroad, or a specific financial contribution that the student earns each year. Parents should not make payment for college contingent on the student choosing a particular major, or playing a specific sport, or attending specific religious services. Though parents are supporting their child’s education, it’s important for them to remind themselves whose education this is—and to support their student’s choices and path toward responsible adulthood.